GRADE LEVEL: Grade 12

SUBJECT: Business Finance

NARRATIVE SCRIPT DRAFT #1

TITLE: Introduction to Financial Management

TOPIC: Concept of a Financial System
TREATMENT: Narrative Lecture
RUN TIME: 15 minutes
SCRIPTWRITER: Precious O. Gregorio
INSTRUCTIONAL OBJECTIVES: After watching the video, the learners should be able to:
1. describe the primary activities of the financial manager
2. illustrate how the financial system works
3. distinguish a financial institution from the financial instrument and financial market.
-----

BACKGROUND MUSIC ALL THROUGHOUT THE VIDEO

START OF THE VIDEO: ANIMATION (0:03)

SCENE 1: GREETINGS WITH BACKGROUND MUSIC (0:12)

Text and animation display

With appearance

Good day, Grade 12 ABM learners! I am Ms. Precious Gregorio, and welcome to another exciting
Business Finance episode here in DepEd TV.

SCENE 2: OBJECTIVES (0:25)

Text and animation display

Voice Over

Before we begin, let’s take a look at the objectives of this lesson. The learners should be able to:
1. describe the primary activities of the financial manager
2. explain how the financial system works
3. distinguish a financial institution from the financial instrument and financial market.

SCENE 3: INTRODUCTION OF TOPIC (0:12)

Text and animation display

With appearance

So, today, as part of the introduction to financial management, we will learn about the concept of a
Financial System.
SCENE 4: MOTIVATION (0:49)

Cartoon animation
Voice Over
Text Display

But I’ll share first with you a story. Once there was a boy from the city of Manila, whose name is Jose.
He used to help his parents do buy and sell, at a small store in the market. Unfortunately, their
business had wiped out because of war. He also lost his parents. From that day, he started to stand
by himself and looked for ways to survive. He sold boots from the dead soldiers that were still useful.
After saving a certain amount of money from selling boots, he started to build his own business, then
expanded his business and became a successful businessman. Hmm... How did he do that?

SCENE 5: FINANCIAL MANAGER (0:31)

Showing Jose and his organizational chart

Text display
Voice over

Jose, as the store owner, made a corporate organization. Remember from the previous lesson that
there are members of an organization that will play a role in the decision making of the company.
And one of the members of that organization that plays a significant role is the financial manager.
The financial manager, which is the same as the Vice-President for Finance, also, as well as the Chief
Financial Officer, makes financing decisions that require funding from investors in the financial
market.

SCENE 6: FINANCIAL MANAGER (0:05)

Animation
Text display
Voice over

Meet Pedro, the financial manager.

SCENE 7: FUNCTIONS OF A FINANCIAL MANAGER 1 (0:22)

Text and animation display

Appearance WB

How does he come up with his financing decisions?

There are four primary activities or functions of a financial manager: Financing decisions, investing,
operating decisions, and declaring dividend policies.

In financing decisions, it includes making decisions on how to fund long term investments, such as
company expansions and working capital, to determine the appropriate capital structure of the
company.
SCENE 8: FUNCTIONS OF A FINANCIAL MANAGER 1.1 (0:24)

With appearance
Graph

Capital structure refers to how much of your total assets are financed by debt and equity. If it was
bought using cash from our pockets, it is financed by equity. On the other hand, if we used money
from our borrowings, the asset purchased is financed by debt. In this figure, the total asset is
financed by 60% debt and 40% equity. Accordingly, the capital structure is 60% debt and 40% equity.

SCENE 9: FUNCTIONS OF A FINANCIAL MANAGER 1.2 (0:29)

With appearance
Posting of the question

Do you think there is an ideal mix of debt and equity across corporations?
The answer is no. The mix of debt and equity varies in different corporations depending on
management’s strategies. It is the responsibility of the Financial Manager to determine which
type of financing, debt, or equity, is best for the company.

SCENE 10: FUNCTIONS OF A FINANCIAL MANAGER 2 (0:42)

With appearance WB
Text and animation display

The second function of a financial manager is investing. The financial manager should use tools like
budgeting, forecasting, and capital budgeting analysis to determine if the investment should be in
the short term or long term. Short term investment decisions are needed when the company is in an
excess cash position. Whereas, long term investment visions profitability in the long run, especially if
this investment would be financed by debt so that the lenders should also have the confidence in
lending the company any money.

SCENE 11: FUNCTIONS OF A FINANCIAL MANAGER 3

With appearance
Text and animation display
Figure display: interest rate

The third one is operating decisions that deal with the daily operations of the company. The financial
manager should determine how to finance working capital accounts by long term or short-term
sources. Short term sources are those that will be payable in at most 12 months like short-term loans
with banks and suppliers’ credit. Long term sources, on the other hand, mature in longer periods. As
you can see in our figure, the interest rate is generally lower in short-term loans as compared to that
of long-term loans. Hence, short-term loans lead to a lower financing cost because this source
matures in a short period, but there is a possibility that the company may not be able to obtain
enough cash to pay its obligation. While in the long-term source, though there is a higher interest
rate, it gives the company more time to accumulate cash to pay off the obligation in the future since
it has a longer time to mature.

SCENE 12: FUNCTIONS OF A FINANCIAL MANAGER 4

With appearance
Text and animation display

And the last function is dividend policies. These determine when the company should declare cash
dividends. Remember that corporations pay cash dividends to existing shareholders or investors
based on their shareholdings in the company as a return on their investment. And non-declaration of
dividends may disappoint these investors. And before a company may be able to declare cash
dividends, two conditions must exist: First, the company must have enough retained earnings or
accumulated profits to support the cash dividend declaration, and second, the company must have
cash.

SCENE 13: TRANSITION TO NEXT SUBTOPIC

Voice over
Text and animation display
Posting of the question at the end
With appearance at the end

Again, the four functions of a financial manager are financing decisions, investing, operating
decisions, and making dividend policies.

Let’s have a check review. What is the primary goal of the financial manager? A. minimizing risk, B.
maximizing profit, C. maximizing wealth, or D. minimizing return.
If your answer is C, then you’re right. The primary goal of the financial manager is maximizing
wealth.
----
Now, do you think Pedro, the financial manager, had maximized the wealth of their company?

SCENE 14: FINANCIAL SYSTEM: SAVER OR SUPPLIERS OF FUNDS

Voice over
Text and animation display
Posting of the question at the end

Before we answer that question, let me introduce to you Maria, Jose’s friend, who was also into
business. During her management of money, some cash would remain. What do you think she would
do with the cash? There were just two. A. save or invest B. spend.

Yes, Maria usually save money in banks or invest some in stocks, mutual funds, and insurance. Was
she a A. saver or B. user? Yes, she’s a saver and capable of being a supplier of funds.
SCENE 15: FINANCIAL SYSTEM: USERS OR DEMANDERS OF FUNDS

With appearance
Text and animation display

Did you know that Jose expanded his business, but his company way back then had not enough cash?
How was that possible?
Hmmm, Pedro, as the financial manager, was responsible for getting additional funding. But, where
or to whom he had to borrow?

Yes, you’re right again! Pedro went to ask Maria. Why didn’t I think of that? Thus, Pedro is a user or
a demander of funds.

SCENE 16: FINANCIAL SYSTEM: PRIVATE PLACEMENT

Voice over
Text and animation display
Posting a flow chart/diagram

Pedro knew that Maria had excess money, and he approached Maria to lend him the capital he
needs to expand Jose’s company for a 20% interest. Since Maria observed that the company has
been profitable, Maria was willing to lend Pedro the money since she was confident that the
company could repay the loan. Maria was now expecting to be 20% richer from her lending to Pedro,
and Jose’s company can now expand its operations to gain more profit. Then, they might agree to
make a private placement.

A private placement is the sale of new security directly to an investor or group of investors. The sale
of new securities can also be made to the general public, and it is referred to as a public offering, and
the first offering of stock is called an initial public offering or IPO. But with their case, it is a private
placement, and it will only happen if Maria knows that Pedro is in need of funds, or if Pedro knows
that Maria is willing to invest funds. But what if these facts are unknown to them?

SCENE 17: FINANCIAL SYSTEM: FINANCIAL MARKET

With appearance
Text and animation display
Posting a flow chart/diagram

Then, they can go both to a financial market, an organized forum that lets the suppliers of funds like
Maria and users of funds like Pedro meet and make transactions. Once the saver and the user have
met in the financial market, they can now agree to make a private placement.

SCENE 18: FINANCIAL SYSTEM: FINANCIAL INSTITUTION

With appearance
Text and animation display
Posting a flow chart/diagram

If the saver and the user do not want to make an effort to find a counterparty in the financial
markets, they may go both to a financial institution that will receive Maria’s supply of funds and
match it with Pedro’s demand of funds. Unlike in the financial markets where Maria and Pedro know
to whom the fund went and from whom the funds came, financial institutions serve as an
intermediary to the suppliers and users of funds. Moreover, financial institutions actively participate
in the financial markets as both suppliers and users of funds. Some examples of financial institutions
are commercial banks, insurance companies, mutual funds, pension funds, and other financial
institutions.

SCENE 19: FINANCIAL SYSTEM: FINANCIAL INSTRUMENT

With appearance
Text and animation display
Posting a flow chart/diagram
Posting of the question at the end

Due to the increased need for security for the obligations arising from transactions and due to the
growing size of the financial system, the transfers of funds from one party to another are made
through financial instruments. These are the obligations to transfer cash or other assets in the future.

When a financial instrument is issued, it gives rise to a financial asset on the one hand and a financial
liability or equity instrument on the other.

Who do you think are the holders of financial assets? A. Suppliers of funds B. Users of funds.
And who makes financial liabilities and equity instruments? A. Suppliers of funds B. Users of funds

Yes, you’re right. Suppliers of funds hold the financial asset, while users of funds make the financial
liabilities and equity instruments.

So, when companies need funding, they either sell debt securities or bonds or issue equity
instruments. The proceeds from the sale of the debt securities and issuance of bonds will be used to
finance the company’s plans. On the other hand, investors buy debt securities of equity instruments
in hopes of receiving returns through interest, dividend income, or appreciation in the financial
asset’s price.

SCENE 20: FINANCIAL SYSTEM: WRAPPING UP/ENRICHMENT

With appearance
Posting a flow chart/diagram

And that’s how a financial system works. Do you think Pedro did a great job? Of course, yes! He
made it possible to expand Jose’s business and their company. How about growing your future
business?

Remember that financial managers make financing decisions that require funding from investors like
Maria, who provide the funds that are to be used by financial managers to finance corporate growth,
or from other investors in the financial market that purchase securities to invest their funds.

SCENE 21: QUIZ 1

Voice over
Timer sound effect.
Text display

It’s quiz time! Now, let’s see what you’ve got. Have your pen and paper ready!

Question number 1: True or False. To achieve the goal of profit maximization for each alternative
being considered, the financial manager would select the one that is expected to result in the highest
monetary return. The answer is TRUE.

SCENE 22: QUIZ 2

Voice over
Text display

Question number 2. True or False. Financial markets are intermediaries that channel the savings of
individuals, businesses, and government into loans or investments. The answer is FALSE. It should be
the financial institution that serves as an intermediary to suppliers and users of the fund.

SCENE 23: QUIZ 2

Voice over
Text display

Question number 3. A life insurance company is one financial intermediary handling individual
savings. It receives premium payments that are placed in loans or investments to accumulate funds
to cover future benefits. It is an example of
A. financial market
B. financial institution
C. financial instrument
And the answer is B. A life insurance company is an example of a financial institution.

SCENE 24: QUIZ 2

Voice over
Text display

Question number 4. The ______ is created by a financial relationship between suppliers and users of
short-term funds.
A. financial market
B. financial institution
C. financial instrument
And the answer is A. Financial markets are organized forums in which the suppliers and users of
various types of funds can make transactions directly.

SCENE 25: QUIZ 2

Voice over
Text display

Question number 5. True or False. IPO stands for Interest and Principal Obligation. The answer is
FALSE. IPO stands for “initial public offering” or the first offering of stock to the general public.

SCENE 26: ENDING

With appearance
How was it? I know you did a good job!
And that wraps up our episode! Thank you, everyone! Once again, I am your Business Finance
teacher for today, Ms. Precious. Bye!