Business Finance

Quarter 3 – Module 1.1:

Introduction to Financial
Management
Business Finance – Grade 12
Alternative Delivery Mode
Quarter 3 – Module 1.1: Introduction to Financial Management
First Edition, 2020

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Business Finance
Quarter 3 – Module 1.1:
Introduction to Financial
Management
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module or if you
need to ask your facilitator or your teacher’s assistance for better understanding of
the lesson. At the end of each module, you need to answer the post-test to self-check
your learning. Answer keys are provided for each activity and test. We trust that you
will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they can
best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and tests. And
read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.
 What I Need to Know

This module is written and designed to help you understand the definition of
finance and financial management and the different individuals who are involved in
achieving the goal of the organization.

After this module, you are expected to:

1. explain the major role of financial management and the different individuals
involved (ABM_BF12-IIIa-1)
a. define Finance and Financial Management;
b. explain the major role of financial management and the different
individuals involved;
c. identify the primary activities of financial manager; and
d. describe how the financial manager helps in achieving the goal of
the organization.

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 What I Know

A. Directions: List six (6) words related to the word financial management. Use the
web graphic organizer below. Write your answers on a separate sheet
of paper.

FINANCIAL
MANAGEMENT

B. Directions: Choose the correct answer from the given choices. Write your answers
on a separate sheet of paper.

1. It is the goal of financial management.

A. minimizing risk C. minimizing return
B. maximizing profit D. maximizing wealth
2. He/She provides the direction of the company.
A. finance manager C. marketing manager
B. board of directors D. shareholders
3. He is the one who supervises the company’s operation and ensuring that the
strategies are well executed and planned.
A. finance manager C. marketing manager
B. president D. shareholders
4. Which of the following is not a role of a finance manager?
A. analysis and planning C. utilization of funds
B. acquiring of funds D. marketing research
5. It refers to how much the total asset is financed by the debt or equity.
A. capital structure C. organization structure
B. loan D. stocks

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6. He/She is responsible in managing the cash and credit, financial planning
and capital expenditures.
A. treasurer C. controller
B. secretary D. president
7. He/She handles tax payments, financial accounting and management
information systems.
A. treasurer C. controller
B. secretary D. president
8. It deals with determining the capital structure of the company and to raise
funds from debt and equity.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividends
9. It deals with working capital management.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividends
10. It deals with managing the assets of the firm.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividends

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 Lesson
Overview of Financial
1 Management
According to Gitman and Zutter (2012), “Finance can be defined as the science
and art of managing money. At the personal level, finance is concerned with
individuals’ decisions about how much of their earnings they spend, how much they
save, and how they invest their savings. In a business context, finance involves the
same types of decisions: how firms raise money from investors, how firms invest
money in an attempt to earn a profit, and how they decide whether to reinvest profits
in the business or distribute them back to investors.”

Finance is a process that includes raising money or resources and allocating

them effectively and efficiently to achieve the firm’s goals or objectives. It includes
financial management, the study of investment, and the study of institutions and
markets. Money is needed by the firm to continue its operations, expansion,
replacement of new machinery and equipment, payments, acquisition of new
investment, and internal growth.

According to Cayanan and Borja (2017), “Financial management deals with

decisions that are supposed to maximize the value of shareholders’ wealth.” Financial
management is a decision-making process that includes planning, analysis,
utilization, and acquisition of funds in order to achieve the desired goals of the
business. Risk and return are part of managing a business. A thorough plan and
analysis should be done to avoid or reduce risks and to have a good return.

The goal of financial management is to maximize the wealth of the

shareholders. Its aim is to make money and add value to the investors and to the
firm. Investors buy stocks because they want something in return. More investors
will create more funds and more jobs. Maximizing the shareholders’ wealth is not
that easy; a lot of things should be considered, and they need to satisfy different
stakeholders. To gain profit, the business should make customers happy. They must
treat their employees well like customers to become more productive and
trustworthy. They should pay their financial obligations with their creditors and
suppliers on time so they can establish a good relationship. They must pay their
financial obligation on time. Firms must also pay attention to the government and
environmental issues. They must comply with the government and legal
requirements. They must see that they will not have a bad effect on the environment.

Financial management includes planning, organizing, controlling, and

directing to acquire and utilize the funds or resources effectively and efficiently. Every
activity of the finance manager should be according to plan. It should be organized,
controlled, monitored, and evaluated.

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 What’s In

Directions: Respond to the given situation. Write your answers on a separate sheet
of paper.

Your mobile phone broke. You believe that you badly need it for your studies,
but your money is insufficient for the repair fee. Where will you get the fund needed?

_____________________________________________________________________________
_____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

Sources of finance can be internal or external. An internal source of finance

does not increase the debts of the business-like profit, savings, and sale of unwanted
assets while, an external source of finance is provided by people or institutions
outside the business that creates debt and requires payment like loans.

5
 What’s New

Directions: Visualize your dream business and write your thoughts/ideas on the
given questions. Write them on a separate sheet of paper.

What is your dream business?

____________________________________________________________________________
____________________________________________________________________________

How are you going to achieve it?

____________________________________________________________________________
____________________________________________________________________________

Who do you think will help you?

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

Like you, businesses also have goals. To achieve them, you need the help of
experts who will perform the different tasks for the realization of the goals.

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 What is It

The Corporate Organization Structure

The figure below shows a typical organizational chart.

Figure 1: Illustration of the Corporate Organization Structure

Adapted from Cayanan (2017)

• The Shareholders elect the Board of Directors (BOD). Each share is equal to
one voting right. They buy shares to earn a profit in a form of dividend.
• The Board of Directors is the highest position in a corporation. Some of their
responsibilities are providing direction of the company, setting the policies on
investments, approving the company’s strategies, goals, and budgets,
appointing, and removing members of the top management.
• The President supervises the company’s operations and ensures that the
strategies are well executed and planned. He/She also performs all areas of
management such as planning, organizing, staffing, directing, controlling,
and evaluating.
• Some of the responsibilities of Vice President for Sales and Marketing are
formulating business strategies and plans, directing and coordinating sales,
making environmental scanning or research that will allow the company to
increase sales, or identifying new market opportunities, analyzing and
assessing the effectiveness and efficiency of the plans, methods and strategies
applied and establishing a good relationship with customers and distributors.

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 • The Vice President for Administration is responsible for the coordination of
the different departments, providing assistance to the other department by
determining the staff needed and assisting other departments in hiring
employees and in payroll preparation.
• The Vice President for Production makes sure that the production meets
the demand, finds ways to minimize cost in producing a competitive quality
product, maximizes the utilization of the production facilities and solves
production issues.
• The Vice President for Finance makes decisions including planning,
acquiring and utilization of funds. The functions of the Finance Manager are
investing decisions, financing decisions, operating decisions, and
declaring dividends.
o Investing decisions deals with managing the assets of the firms. Some
of the examples of investment decisions are the allocation of funds,
determination of the funds that a firm can put into investment,
evaluation, and selection of capital investment proposal.
o Financing decisions includes making decisions on how to finance the
long-term investments (expansions or acquisition of new land) and
working capital which deals with the day-to-day operations of the
company (payment of rent and utilities, purchase of raw materials). The
finance manager must determine the right capital structure of the
company. Capital structure refers to how much the total asset is
financed by the debt (like loans) or equity (like stocks or bonds).
o Operating decisions deals with working capital management. Working
capital refers to short-term assets and short-term liabilities. Inventory,
receivables, cash, and short-term investments are examples of short-
term assets. Accounts payable and short-term investments are
examples of short-term liabilities. Working capital management helps
the firm to ensure that the firm has sufficient resources to finance the
day-to-day operations but, if the management is aggressive, they will
take the risk to use either long-term or short-term sources or even the
combination of the sources. (Later on, this will be discussed in
other modules.)
o Declaration of dividends refers to the determination of how much
dividends are to be distributed to the shareholders, frequency of
payments and amounts to be retained by the firm. Dividend is a
portion of profit or payment made by a corporation to its shareholders.
o There are certain conditions before a company can declare dividends:
(1) The company must have enough retained earnings (accumulated
profits) to support cash dividend declaration. (2) They must have
enough cash.

Both the treasurer and the controller report to the Vice President for Finance.
The treasurer is responsible in managing the cash and credit, financial planning and
capital expenditures. The controller handles tax payments, financial accounting and
management information systems.

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 The organizational structure of the firm depends on the size and nature of the
firm. Every department in the organization needs funds to function well. Since
finance is needed in all parts of the organization, the finance manager must
communicate with other department managers to achieve the goals of the company.

The Role of the Finance Manager

According to Cabrera (2017), “In striving to maximize owners’ or shareholders’

wealth, the financial manager makes decisions involving planning, acquiring, and
utilizing funds which involve a set of risk-return trade-offs.” Those risks or returns
would have an impact on the market value of the firm that will lead to the
shareholder’s wealth maximization or downfall of the firm if no proper decisions were
made, but some of the factors that affect the market’s price of the firm’s shares are
beyond the control of the management. Thus, it is the responsibility of the financial
manager to make decisions in allocating the funds or resources properly, finding the
best alternatives for funding the company, and creating a policy in distributing the
dividends of the investors in line with the organization’s objectives.

Figure 2: The Role of Financial Manager

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 What’s More

Directions: Answer the following questions in one (1) to two (2) sentences. Write your
answers on a separate sheet of paper.

1. Why do we study financial management? Enumerate its benefits to the

success of a business.

_______________________________________________________________________
_______________________________________________________________________

2. What is the role of finance in the development of an economy?

_______________________________________________________________________
_______________________________________________________________________

3. How does the financial manager affect the firm’s overall business strategies?

_______________________________________________________________________
_______________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

10
 What I Have Learned

Directions: Answer the following questions in one (1) to two (2) sentences. Write your
answers on a separate sheet of paper.

In this lesson,

I learned that:

____________________________________________________________________________
____________________________________________________________________________

I did that:

____________________________________________________________________________
____________________________________________________________________________

I realized that:

____________________________________________________________________________
____________________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

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 What I Can Do

Saving money is a basic

application of the principles of
financial management that
teaches one to budget properly. It
does not matter how much money
you save, what matters is that you
learn to save.

Assessment

A. Directions: Write True if the statement is correct and False if the statement is
incorrect. Write your answers on a separate sheet of paper.

_______1. The controller is responsible in managing the cash and credit,

financial planning and capital expenditures.
_______2. Investing decisions deals with managing the assets of the firms.
_______3. The Board of Directors is the highest position in a corporation.
_______4. Financing decisions includes making decisions on how to finance the
long-term investments and working capital which deals with the
day-to-day operations of the company.
_______5. The treasurer handles tax payments, financial accounting and
management information systems.
_______6. Operating decisions deals with working capital management.
_______7. Sales is a portion of profit or payment made by a corporation to
its shareholders.
_______8. The goal of financial management is to minimize the wealth of
the shareholders.
_______9. Marketing management includes planning, organizing, controlling,
and directing to acquire and utilize the funds or resources effectively
and efficiently.
_______10. The company must have enough retained earnings and cash to
declare cash dividends.

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B. Directions: Choose the correct letter from the box below. Write your answers on a
separate sheet of paper.

A. Shareholders D. Finance
B. President E. Financial management
C. Marketing manager F. Finance manager

_______11. It deals with ways of managing money.

_______12. It is concerned with planning, analysis, utilization, and
acquisition of funds.
_______13. They elect the Board of Directors.
_______14. He/She is appointed by the Board of Directors.
_______15. He/She formulates business strategies and plans.

Additional Activities

Directions: Answer each question in two (2) to three (3) sentences on a separate sheet
of paper.

1. Supposed that you have saved Php. 100, 000.00. How will you manage your
finances wisely?

_______________________________________________________________________
_______________________________________________________________________

2. Why is it important to understand the basics of financial planning?

_____________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

Scoring Rubrics:

5 points The answer is well-written, organized and the idea is very relevant
to the question and has no grammatical or spelling errors.
4 points The answer is fairly written, and the idea is almost relevant to the
question and has one grammatical or spelling error.
3 points The answer is somewhat relevant to the questions and has two to
three grammatical or spelling errors.
2 points The answer is unclear and has four grammatical or
spelling errors.
1 point The answer does not address the question and has more than five
grammatical or spelling errors.

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 14
What I Know What’s In What’s New
A. The answer will The answer will depend The answer will depend on
depend on the student. on the student. the student.
B.
1. d
2. b
3. b
4. d
5. a
6. a
7. b
8. b
9. c
10. a
What’s More What I Have Learned What I Can Do
The answer will depend The answer will depend The answer will depend on
on the student. on the student. the student.
Assessment Additional Activities:
A. The answer will depend
1. True on the student.
2. True
3. True
4. True
5. False
6. True
7. False
8. False
9. False
10. True
B.
1. e
2. e
3. a
4. b
5. c
Answer Key
References
"Introduction To Financial Management". 2021. Lumen.
https://courses.lumenlearning.com/boundless-
business/chapter/introduction-to-financial-management/.
Cabrera, Ma. Elenita, and Gilbert Anthony Cabrera. 2017. Business Finance
Principles And Applications. Sampaloc, Manila: GIC Enterprises & Co., Inc.
Cayanan, Arthur, and Daniel Vincent Borja. 2017. Business Finance. 1st ed. Manila:
Rex Book Store.
Gitman, Lawrence, and Chad Zutter. 2012. Principles Of Managerial Finance. 13th
ed. Prentice Hall.
Teaching Guide For Senior High School Business Finance. 2016. Quezon City:
Commission on Higher Education.
Yumang, Kenneth, Chan Pao, Tyrone, and Patricia Benito. 2016. Quezon City:
Exploring Small Business And Personal Finance. The Phoenix Publishing
House Inc.

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Schools Division of Bataan - Curriculum Implementation Division
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Email Address: bataan@deped.gov.ph