MANAGING THE

FINANCE
FUNCTION
FINANCE FUNCTION
• Important management responsibility
• Procurement and administration of funds with the view
of achieving the objectives of business
• One of the three basic management functions
THE FINANCE FUNCTION: A PROCESS FLOW

Determination Effective and

Procurement
of Fund efficient use of
of funds
requirements fund
THE DETERMINATION OF FUND REQUIREMENTS
• To finance daily operations
• To finance the firm’s credit services
• To finance the purchase of inventory
• To finance the purchase of major assets
THE SOURCES OF FUNDS
• Cash sales
• Collection of accounts receivables
• Loans and credits
• Sale of assets
• Ownership contribution
• Advances from customers
SHORT TERM SOURCES OF FUNDS
Supplies of short-term
Advantages Disadvantages
funds

Easier to obtain Mature more frequently Trade creditors

Often less costly More costly Commercial banks

Offers flexibility to borrowers Commercial paper houses

Finance companies

Factors

Insurance companies
LONG TERM SOURCES OF FUNDS
• Long term debts
• Term loans
• bonds
• Common stocks
• Retained earnings
ADVANTAGES OF TERM LOANS
• Funds can be generated more quickly than other long-
term sources
• They are flexible
• The cost of issuance is low compared to other long-
term sources
TYPES OF BONDS
Type of Bond Feature
Debentures No collateral requirement
Mortgage bond Secured by real estate
Secured by stocks and bonds owned by the
Collateral trust bond
issuing corporation

Payment of interest or principal is guaranteed

Guaranteed bond
by one or more individuals or corporations

Subordinated debentures With an inferior claim over other debts

Convertible bonds Convertible into shares of common stock
Warrants are options which permit the holder
Bonds with warrants to buy stock of the issuing company at a
stated price
Income bonds Pays interest only when earned
BEST SOURCES OF FINANCING
• Flexibility
• Risk
• Income
• Control
• Timing
• Other factors
THE FIRM’S FINANCIAL HEALTH
• To make profits for the owners
• To satisfy creditors with the repayment of loans plus
interest
• To maintain the viability of the firm
INDICATORS OF FINANCIAL HEALTH
• Balance sheet
• Income statement
• Statement of changes in financial position
RISK MANAGEMENT AND INSURANCE
• Risks refers to the uncertainty concerning loss or injury
• Fire
• Theft
• Floods
• Accidents
• Nonpayment of bills by customers
• Disability and death
• Damage claim from other parties
TYPES OF RISK
• Pure
• Speculative
RISK MANAGEMENT
• And organized strategy for protecting and conserving
assets and people
• The purpose is to choose intelligently from among all
the available methods of dealing with risk in order to
secure the economic survival of the firm
METHODS OF DEALING WITH RISK
• The risk may be avoided
• The risk may be retained
• The hazard may be reduced
• The losses may be reduced
• The risk may be shifted
THANK
YOU!
Prepared by:
RALPH N. BUDIONGAN
RALPH ERWIN P. CARDOSO
ANA JEAN M. CABRIGAS