INTERWORLD COLLEGES FOUNDATION, INC.

Burgos St., Paniqui, Tarlac

COLLEGE DEPARTMENT
S.Y. 2020 – 2021 Second Semester

FINANCIAL MANAGEMENT
PMC1

COURSE MODULE

Credit: 3 units
Time Allotment: 18 weeks / 54 hrs.

Student’s Name _______________________________________Student Number __________________

Course / Year _______________________________________
Schedule: ______________ (days) ______________(time) ________________(room)

Prepared by: Recommending Approval:

MARIA SALOME L. SUNGLAO LIGAYA B. AUSTRIA

Instructor School Director

Checked by: Approved:

BENEDICTO R. AGUINALDO MARY ANN C. PABALAN

Module Coordinator Administrator
COURSE DESCRIPTION

This course seeks to provide the foundation of financial management. It will introduce some of the
COURSE DESCRIPTION
basic concepts used by financial managers in the decision process. Topics also included the legal forms of
business organization as well as the fundamental principles that drive the practice of corporate finance are
presented in the form of (10) ten principles. It also includes management of working capital, fund
management, inventory management and loans and receivables management.

COURSE OBJECTIVES

Upon the completion of the course, student is expected to be able to perform the following:
1. Describe the nature, goal and basic scope of financial management
2. Understand how finance fits in the organizational structure of the firm
3. Know and understand the role and responsibilities of a Financial Manager.
4. Apply the Ten Axioms that form the foundations of Financial Management.
5. Apply the steps in developing a cash budget
6. Understand the need to manage cash receivables, inventories and working capital

CREDIT AND ACKNOWLEDGEMENT

This module is created for the purpose of academic learning of college students under the
curriculum of their department and not for reproduction to create sales. The author of this module
would like to express gratitude to all the authors of the reference books and information collected in
different media that has been used in order to formulate other ideas and more concise material.
Citations and references are included in this material to inform the readers that the author is not
claiming all the credit for this module.
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MODULE 1: Introduction to Financial Management

Learning Objectives

At the end of this module, you are expected to:

1. Define Financial Management.

2. Describe the nature, goal and basic scope of financial management
3. Compare the various legal forms of business and explain why the corporate form of
business is the most logical choice for a firm that is large or growing

INTRODUCTION

During the past decade, starting and growing companies has caught the interest of a lot of individuals.
Many people want to own their own business. In fact, while many of the big companies are reducing the
number of employees, smaller companies are creating new jobs. People in all areas of responsibility –
Management, Marketing, Accounting and so forth need a basic understanding of financial management
functions.
Today, the pandemic situation is affecting the lives of many students, families and communities. We are
living amidst what is potentially one of the greatest threats in our lifetime to global education, a gigantic
educational crisis. For a company in today`s world, surviving one scare is not enough. Cash inflows must at
least equal cash outflows overtime, and the small business entrepreneur, even without an awareness of the more
advanced techniques of financial management, will at least ensure adequate cash flows if the business is to
survive.

NATURE OF FINANCIAL MANAGEMENT

According to Cabrera(2012), Financial Management, also referred to as managerial finance, corporate

finance, and business finance, is a decision making process concerned with planning, acquiring and utilizing of
funds in a manner that achieves the firm`s desired goals. It also described as the process for and the analysis of
making financial decisions in the business context. Financial Management is part of a larger discipline called
FINANCE which is a body of facts, principles, and theories relating to raising and using money by individuals,
businesses, and governments. This concerns both financial management of profit-oriented business
organizations particularly the corporate form of business, as well as, concepts and techniques that are applicable
to individuals and governments

GOAL OF THE FIRM

A financial manager is hired to make decisions for the interest of the owners. In this case, the goal of the
firm is to maximize firm`s value or to add value for the owners. This can be reflected through the maximization
of the price of existing common stocks.
On the other hand, when people are asked about the goal of the firm, they commonly say it is profit
maximization. However, there may be a long list, if possible, goals of a firm which consist of survival, avoiding
financial distress, and bankruptcy, beating competition, maximizing sales or market share, minimizing costs,
maximizing steady earnings growth and maximizing profit. These goals may be classified into two groupings
namely those that are related to profitability and the second groups relates to bankruptcy avoidance.
The appropriate goal of the firm is maximizing the firm`s value through the existing price of the
common stock. This is achieved when the financial manager is able to make financial decisions that are for the
interest of the owners by identifying goods and services that add value to the firm. (Beray et al. 2011)

FORMS OF BUSINESS ORGANIZATION

The three most common legal forms of business organization are the sole proprietorship, the partnership,
and the corporation.

A sole proprietorship is a business owned by one person who operates it for his or her own profit. The
proprietor normally raises capital from personal resources or by borrowing and is responsible for all business
decision. The majority of sole proprietorship are found in the wholesale, retail, service and construction
industries.
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MODULE 1: Introduction to Financial Management

A partnership consists of two or more owners doing business together for profit. Partnership account for
about ten percent of all businesses, and they are typically larger than sole proprietorship. Finance, insurance and
real state firms are the most common types of partnership. Public accounting and stock brokerage partnerships
often have large amount of partners.

A corporation is an artificial being created by law. Often called a “legal entity”, a corporation has the
powers of an individual in that it can sue and be sued, make and be party to contracts and acquired property in
its own name. Although only about fifteen percent of all businesses are incorporated, the corporation is the
dominant form of business organization in terms of receipts and profits. The key strengths and weaknesses of
large corporation are summarized in Table 1.1 and 1.2.(Gitman, 2003)

TABLE 1.1 Strength of the Common Legal Forms of Business Organization

Sole Proprietorship Partnership Corporation

Strength Owner receives all Can raise more funds Owners have limited
profits and sustains all than sole proprietorship liability which guarantees
losses that they cannot lose
more than they invested
Low organizational costs Borrowing power Can achieve large size
enhanced by more via sale of stock
owners
Income included and Income included and Receives certain tax
taxed advantages on taxed on partner`s tax
proprietor`s personal tax return
return
Independence More available brain Ownership(stock) is
power and managerial readily transferable
skill
Secrecy Long life of firm
Ease of dissolution Can hire professional
managers

TABLE 1.2 Weaknesses of the Common Legal Forms of Business Organization

Sole Proprietorship Partnership Corporation

Weaknesses Owner has unlimited Owners have unlimited Taxes generally higher,
liability-total wealth can liability and may have to
because corporate
be taken to satisfy debts cover debts of other income is taxed and
partners dividends paid to owners
are also taxed
Proprietor must be jack- Partnership is dissolved More expensive to
of-all trades when a partner dies organize than other
business forms
Lacks of continuity when Difficult to liquidate or Subject to greater
proprietor dies transfer partnership government regulation
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MODULE 2: FUNCTIONS OF FINANCIAL MANAGEMENT

Learning Objectives

At the end of this module, you are expected to:

1. Describe the role of Finance Manager in achieving the primary goal of the firm.
2. Explain briefly the three major types of decisions that the Finance Manager makes
3. Understand how finance fits in the organizational structure of the firm
4. Explain how the finance function related to the other functional areas of a business.

ROLE OF FINANCE MANAGER

Finance involves managing the firm`s money. The financial manager must decide how much money is
needed and when, how best to use the available funds, and how to get the required financing. The financial
manager`s responsibilities include financial planning, investing (spending money), and financing ( raising
money). Maximizing the value of the firm is the main goal of the finance manager, whose decisions often have
long-term effects.

DECISIONS MADE BY A FINANCIAL MANAGER

There are three major decisions that financial managers have to take:

1. Investment decisions

These types of decisions are also known as capital budgeting decisions because it concerns long term
investment of the enterprise. These decisions involve the use of funds such as buying, holding or selling of all
types of assets of the enterprise. An example of these decisions includes buying of new equipment to replace the
old one or repairing the old equipment. Investing decisions are related to the left hand side of the balance sheet.

2. Financing decisions

These types of decisions are primarily concerned with obtaining or sourcing of funds to be used for
investing and providing funds for the day-to-day operations of the enterprise. Acquiring an asset may be
financed by incurring credit from financial institutions or individuals and/or selling of ownership interest.
Likewise, financing an asset may be obtained from the firm’s revenue. These decisions are related to the right
hand side of the balance sheet. (Beray et al. 2011)

3. Dividend decisions

These types of decision is one of the crucial decisions made by the finance manager relating to payouts
to the shareholders. The payout is the proportion of earning per share given to the shareholders in the firm of
dividends.

The objective of the Financial Management is the maximization of shareholders wealth. Therefore, the
finance manager must ensure a win-win situation for both the shareholders and the company.
(https://businessjargons .com)

ROLE OF THE FINANCIAL MANAGER IN A CORPORATION

Although a firm can assume many different organizational structures, Figure 2.1 presents a typical
representation of how the finance area fits into a corporation. The vice president for Finance, also called the
Chief Financial Officer(CFO), serves under the corporations Chief Executive Officer(CEO) and is responsible
for overseeing financial planning, corporate strategic planning, an controlling the firms cash flow. Typically, a
treasurer and Controller serve under the CFO. In a smaller firm, the same person may fill both roles, with just
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one office handling all the duties. In this class, we focus on the duties generally associated with the Tresurer and
on how investment decision are made. (Keown, 2005)
MODULE 2: FUNCTIONS OF FINANCIAL MANAGEMENT

Figure 2.1 Corporation Organizational Structure

Board of Directors

Chief Executive Officer

Vice-President Vice-President Finance Vice-President

Marketing or Production and Operations
Chief Financial Officer(CFO)
Duties
Oversee financial planning
Corporate Strategic planning
Control Corporate cash flow

Treasurer Controller

Duties: Duties:
Cash Management Taxes
Credit Management Financial Statements
Capital Expenditures Cost Accounting
Raising Capital Data Processing
Financial Planning
Management of Foreign Currencies
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REFERENCES:

A. BOOK

Anastacio, Ma. Flordeliza and Dacanay, Roberto C. 2010. Fundamentals of Financial Management
(With Industry – Based Perspective). Rex Book Store Inc.
Beray. Monang. Castillo and Mendoza. 2010. Principles of Finance Revise Edition. Valencia
Educational Supply
Cabrera, Ma. Elenita B. 2012 Edition. Financial Management ( Principles and Applications Vol. 1). GIC
Enterprises &Co., Inc.
Gitman, Lawrence J. 2003 Tenth Edition. Principles of Managerial Finance. Pearson Education (Asia)
Pte Ltd.
Keown, Arthur J and Martin John D. 2005 Tenth Edition. Financial Management (Principles and
Applications). Pearson Education South Asia Pte. Ltd.
Mejorada, Nenita D. (1993). Business Finance. Goodwill Trading Co., Inc.
Saldana, Cesar G. (1985). Financial Management in the Philippine setting. AFA Publication, Inc.
(1997). Principles of Managerial Finance ( A financial analysis approach). AFA Publications, Inc.

B. INTERNET

https://businessjargons.com
https://corporatefinanceinstitute.com
https://www.econguro.com
www.svtuition .org
https://www.investopedia.com>terms
www.inc.com
https://treasuryxl.com>what-is-cash
Image
Techfunnel.com