Functions of Financial Management

(Financial Management 1)
3rd Trimester, AY 2020-2021
 Functions of Financial Management
Learning Outcomes:
1. Describe the role of Finance Manager in achieving the
primary goal of the firm
2. Understand how finance fits in the organizational structure
of the firm
3. Enumerate the fundamental activities of the Treasurer and
the Controller
4. Explain how the finance function relates to the other
functional areas of business
5. Learn the importance of corporate governance in achieving
the goals of a business organization
6. Appreciate the importance of ethics in finance.
Role of Finance Manager
 Role of Finance Manager
• To maximize the shareholders wealth, the financial
manager is in charge of making decisions involving
planning, acquiring and utilizing funds which involve a
set of risk-return trade-offs.
• The financial decisions made affects the market value of
the firm’s stock which can lead to wealth maximization.
• However there are factors that affect the market price of a
firm’s shares which are beyond management control.
• The appropriate risk-return trade-off must be determined
to maximize the market value of the firm for its
shareholders.
• The risk return decision will influence not only the
operational side of the business but also the financing mix.
The Finance Organization
 Relationship with Other Key Functional
Managers in the Organization
• Finance is one of the major functional areas of a business.
• Other functional areas would include manufacturing,
marketing and finance.
• Manufacturing deals with the design and production of a
product. Marketing involves the selling, promotion and
distribution of a product.
• Manufacturing and Marketing are critical for the survival of a
firm because these areas determine what will be produced
and how it will be sold, and these areas cannot function
without funds.
• Finance Manager interacts with these managers to ascertain
that goals will be met.
Corporate Governance
 Corporate Governance
• Corporate governance is the process of monitoring
managers and aligning their incentives with
shareholder’s goals.
• Shareholders (investing public) are usually inactive with the
management of the firm, so it is the management of the firm
who handles the business of running the company.
• As shareholders does not know what goes on at the firm’s
operational level, they delegate the task to the managers of
the firm to handle the day to day operations.
• The Board of Directors are appointed to represent the
shareholders’ interest (monitors inside a public firm).
• The board hires the CEO, evaluates management and can
also design compensation contracts to tie management’s
salaries to firm performance.
 Corporate Governance
• Auditors, analysts, investment banks and credit rating
agencies (monitors outside a public firm).
• External auditors examines the firm’s accounting systems
and comment on whether financial statements fairly
represent the firm’s financial position.
• Investment analysts keep track of the firm’s performance,
conduct the evaluations of the company’s business activities
and report to the investment community.
• Investment banks, helps firms access capital markets also
monitor firm’s performance.
• Credit analysts examine a firm’s financial strength for its
debt holders.
• Government also monitors the firm through SEC, BIR, BSP
etc.
 Jobs in Finance
• Finance prepares students for jobs in banking,
investments, insurance, corporations and the
government.
• Accounting students need to learn not only finance but
also marketing, management and human resources.
• Finance people would judge the proposals of marketing
and its impact on the profitability of the firm.
• They would also need to make important management
decisions as it affects the firm’s value.
 Ethical Behavior
• Ethics are of primary importance in any practice of finance
as finance people manages other people’s money.
• The fiduciary relationships oftentimes creates tempting
opportunities for finance professionals to make decision that
either benefit the client or benefit themselves as advisors.
• Strong emphasis on ethical behavior and ethics training and
standards are provided by professional organizations like
FINEX, BAP, Investment Professionals etc.
• The corporate governance system has created ethical
dilemmas and has failed to prevent unethical managers from
stealing from firms which equates to stealing from the
stockholders/owners of the firm.
• Governments worldwide have set up strong punishment for
financial fraud and abuse to mitigate these issues.
OPEN FORUM

•QUESTIONS????
•REACTIONS!!!!!
END OF PRESENTATION