Professional Documents
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Learning Module for Business Finance
EXPECTATIONS
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Learning Module for Business Finance
II. TRUE or FALSE
Direction: Before each statement, write TRUE if the statement is correct
or FALSE if the statement is incorrect.
___________1. Capital structure refers to how much of your total assets is
financed by debt and how much is financed by equity.
___________2. Short term investment decisions are needed when the
company is in an excess cash position.
___________3. The mix of debt and equity varies in different corporations
depending on management’s strategies.
____________4. Managers’ credit are the amounts owed to suppliers for the
inventories they delivered or services they provided.
Let us begin by giving the result of your interview with a Chief Financial
Officer (CFO) or Vice-President for Finance.
Directions: Write the name of the company that you have interviewed. List
down the roles and functions that you identified from the interview. Take note
of the functions that are not roles of a Financial Manager but are roles of
other managerial positions. Know that these functions are done by people in
the company who are holding other managerial positions. A Financial
Manager is part of a management team whose ultimate goal is to maximize
shareholders wealth.
NAME OF COMPANY:
ROLES AND FUNCTIONS OF A FINANCIAL MANAGER
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Learning Module for Business Finance
BRIEF INTRODUCTION
The Corporate Organization Structure
From the diagram presented, each line is working for the interest of the
person on the line above them. Since the managers of the company are
making decisions for the interest of the board of directors and the board of
directors do the same for the interests of the shareholders, it follows that the
goal of each individual in a corporate organization should have an objective of
shareholders’ wealth maximization. (Cayanan, A. 2015)
Let us discuss briefly the roles of each position identified. Enjoy learning.
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Learning Module for Business Finance
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Learning Module for Business Finance
LESSON
Flow of Funds within an Organization through and
2 from Enterprise and the role of the Financial
Manager
- Financing
- Investing
- Operating
- Dividend Policies
Recall from the previous lesson that there are situations when we are
faced with lack of funds. Financing decisions include making decisions on
how to fund long term investments (such as company expansions) and
working capital which deals with the day to day operations of the company
(i.e., purchase of inventory, payment of operating expenses, etc.).
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Learning Module for Business Finance
On the other hand, if we used money from our borrowings, the asset
bought is financed by debt. In the figure above, the total assets is financed
by 60% debt and 40% equity.
Accordingly, the capital structure is 60% debt and 40% equity. Try to
analyse. Are there ideal mixture of debt and equity across corporations? Try
to express inner understanding as a manager. Explain your answer.
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Learning Module for Business Finance
Recall that, investing is where to put your excess cash to make it more
profitable. We expand that definition by including cash held taken from
funds as a result of financing decisions. Investments may either be short
term or long term.
Operating decisions deal with the daily operations of the company. The role
of the VP for finance is determining how to finance working capital accounts
such as accounts receivable and inventories. The company has a choice on
whether to finance working capital needs by long term or short term sources.
Why does a Financial Manager need to choose which source of financing a
company should use? What do they need to consider in making this
decision?
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Learning Module for Business Finance
Short Term sources are those that will be payable in at most 12 months. This
includes short-term loans with banks and suppliers’ credit. For short-term
bank loans, the interest rate is generally lower as compared to that of long-
term loans. Hence, this would lead to a lower financing cost. Suppliers’
credits are the amounts owed to suppliers for the inventories they delivered
or services they provided.
Long term sources, on the other hand, mature in longer periods. Since this
will be paid much later, the lenders expect more risk and place a higher
interest rate which makes the cost of long term sources higher than short
term sources. However, since long term sources have a longer time to
mature, it gives the company more time to accumulate cash to pay off the
obligation in the future.
Recall that one of the functions of a finance manager is investing and its
available cash may be used to invest in long term investments that would
increase the profitability of the company. Some small enterprises which are
undergoing expansion may have limited access to long term financing (both
long term debt and equity). This results to these small companies reinvesting
their earnings into their business rather than paying them out as dividends.
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Learning Module for Business Finance
Answer Key:
• Availability of financially viable long-term investment
• Access to long term sources of funds
• Management’s Target Capital structure
On the other hand, companies which have access to long term sources
of funds may be able to declare dividends even if they are faced with
investment opportunities. However these investment opportunities are
financed by both debt and equity. The management usually appropriates a
portion of retained earnings for investment undertakings and this may limit
the amount of retained earnings available for dividend declaration. Examples
of these companies are companies such as PLDT, Globe Telecom, and
Petron. (information as of 2014).
Unilever: ―Finance plays a critical role across every aspect of our business.
We enable the business to turn our ambition and strategy into sustainable,
consistent and superior performance‖ - Jean-Marc Huët (Unilever)
Jollibee: ―It’s very exciting because you are not just thinking of today but
what the company will need in the future‖ - Ysmael V. Baysa Morales,2013)
ACTIVITIES
b) What other positions can you think of that are related to financial
management? _______________________________________________
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Learning Module for Business Finance
Activity 2.
a. Shareholders
b. Board of Directors
c. President (CEO)
d. VP for Marketing
e. VP for Production
f. VP for Administration
g. VP for Finance
REMEMBER
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Learning Module for Business Finance
2. Globe Telecom: ―Yesterday’s solutions are never adequate for the future‖ –
Albert De Larrazabal (Klobucher, 2015). Explain briefly.
POSTTEST
I. MULTIPLE CHOICE
Direction: Choose the letter corresponding to the correct answer for each
of the questions provided below.
1. The role of the _______________________________ is to determine the
appropriate capital structure of the company.
a. VP for Marketing
b. VP for Finance of the Financial Manager
c. VP for Production
d. VP for Administration
2. ______________________________ is a tool to assess whether the investment will
be profitable in the long run.
a. Capital budgeting analysis
b. Chief Financial Officer
c. Shareholders
d. Dividend policies
e. Short term investment
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Learning Module for Business Finance
3. _______________________ include making decisions on how to fund long term
investments (such as company expansions) and working capital which deals
with the day to day operations of the company.
a. Sources of funds
b. Short term investment decisions
c. Issuance of new shares
d. Financing decisions
e.
4. Capital structure refers to how much of your total assets is financed by debt
and how much is financed by equity.
a. Capital structure
b. Dividend Policies
c. Retained earnings for investment
d. Long term investment decisions
5. If we used the money from our borrowings, the asset bought is financed by
________________________.
a. Equity
b. Raw material suppliers
c. Debt
d. Cash dividends