Introduction to Financial management

Financial Management
– is also referred as managerial finance, corporate finance or business finance.
– is concerned with the acquisition, financing and management of assets with some overall goal in mind.
( Ang overall goal in mind ng business owner ay maging profitability and sustainability. If you are a
business owner ang aim mo dapat ay maging profitable (profitability) and sustainable (sustainability).
Kung kumita ka this year dapat magtuloy tuloy para maging sustainable.
Ano ang maitutulong ng Financial management pagdating sa profitability and sustainability?
– it concerned with the acquisition of the assets with the available finance from the owner or loan
in the financial institution because pwede kang kumuha ng capital or puhunan sa financial
institution which is tinatawag nating Debt Financing and Equity Financing. If combination ang
gagawin , as much as possible the equity is higher than its liability or dapat mas malaki yung
ownership of the business than lender. Mas mataas ang ownership ng mga shareholders.
Going concern assumption – may forever when it comes to business, until such time na magdecide ang
Business owner na mag liquidation. Dahil papunta na siya sa bankruptcy.

Financial Manager
– a financial manager plays a pivotal role in keeping the Businesses intract and on track.
(By applying his knowledge, dapat maging team player siya in order to ordinates yung communication
from financial department. )
– to oversee the financial health of an organization. They generate financial reports, direct investment
activities and create an organization long term financial goals.
(Responsible for operating data and advicing senior manager and opportunity to maximize its profit .
Some of the specific responsibility include maintaining cash flow, reviewing bank activities and bank
reconciliation, and develop amd interpret data basis in financial model ng isang company also they are
managing company budget).
Bakit mga ba importante ang role ng financial manager ?
– kasi it provides guidance into financial planning. They also assist in acquiring funds from
different courses. To give owner proper value.

GOAL OF FINANCIAL MANAGEMENT

● PROFITABILITY (short- term goal)
● SUSTAINABILITY ( long - term goal)

Ano ang specific goal asides from profitable and sustainable?

– The financial manager must act in the owners or shareholders best interest by making decisions
that would increase the value of the firm or the value of its shares of stocks.
(Kapag mataas ang value ng investment ng mga investment ng mga owner mataas din yung
value ng firm)

Three major Types of Financial Decisions

● Investment Decisions
● Financing decisions
 ● Asset management decisions
Overall goal, all of these decisions aims to maximize the shareholders wealth through maximization of
the firm's wealth.
Investment Decisions
– most important decision among the three when it comes to value creation. (Value creation means
pinapataas ang Value ng firm at ng mga owner or shareholders.)
– determines the total amount of assets to be held by the firm. (Siya yung magdedesign kung ano ba yung
mga assets)
– Financial managers determines the size of the firm and the composition of jts assets.
– Left-side of the basic accounting equation ( Asset = Liabilities+ Equity)
– it deals with question such as: how much of the firms total assets be devoted to cash or to inventory or
to recievable ?
– also consider "disinvestment" assets that can no longer be economically justified may need to be
reduced.
Composition of assets :
● Current – asset's that can be consumables within the normal operating cycle or 1 year or less.
Just like the cash equivalent, inventory, prepared assets)
● Non current – properties that we are expecting to use within the longer period of time or more
than a year.
Paano ang composition ng assets natin, tayo ba ay Current or Non current ?
– it depends on the kind of the business that we have. For example, If you have a manufacturing company
dapat you are heavily dependent on non current assets. Why? Kasi malaki ang investment sa mga
properties and land, more on machines and building. Pagdating sa sa current assets dapat makita natin
kung tama ba yung pagcocollect baka malaki na yung recievables mo. Therefore jaoag hindi
nagkakaproblem tayo sa operation because yubg cash na macocollect natin na magagamit natin sa
operation ay hindi natin nakuha kasi may problem in the collection.

Financing Decisions
– second major decisions
– right sude if the basic accounting equation (Asset= Liabilities+ Equity)
– it deals with the questions: if i were to maintain the size of the asset or acquired asset, how should I
finance this ? (Kung tayo ba ay uutang or kukuha ng bulsa sa mga investor natin or shareholders)
💮 When you choose to fund debt financing ano yung kabayaran? Interest expense.
Debt Financing - Interest Expense
💮 Kung mangagaling naman sa investor na tinatawag nating Equity Financing ano yung kabayaran? May
share sila sa income mo through devidends
Equity Financing - Devidends
➖ So you have to decide as a financial manager, if paano imamaintain or babayaran yung cost of capital
its Debt Financing or Equity Financing.
– debt and equity financing (mix of dept and equity chosen to finance investments)
– how best to acquire the needed funds short term loan? Long term loan ? What us the cost of financing.

Asset management Decisions

– the third important decision of the firm ia the asset management decision.
(Once na na acquired na natin for our assets, this asset's must be manage effeciently. Hindi lang kapag
nabuli muna , they should be manage effeciently. The financial manager is charge with varrying degrees
of operating responsibility over the assets. This responsibility required niya si financial manager to be
more concern with the management of current assets.
Si financial manager must concern sa mga management ng current assets than the fix assets. Why?
Because sila na bahala sa fix assets.

Agency Problem
Agent – individual/ authorized by another person, called the principal to act on the latter's behalf. ( You
are the extension of the person that will represent of her/him or ikaw yung magiging representative ng
isang business)
Agency – a branch of economics relating to the behavior of principals (such as owners) and their agent's
(such as Managers).
Agency Problem –
– Does the agebt really act appropriately for the best interest of the owner?
– owners ( shareholders) can assure themselves that the agents (management) will make optimal decisions
only if appropriate incentives are given and only if the agents are monitored ( stock options, bonuses,
perks like expensive offices, cars, etc)
Saan nangyayari ang agency program?
– pagdating sa corporation, most of the shareholders do not know what is happening in the operation of
the corporation. Yung mga shareholders nalalaman lang nila kapag tapos na yung financial statement at
magkakaroon ng shareholders meeting. Dun palang dinidiscuss yung mga plans but hindi nila alam yung
daily operation ng company.
Do they do their work properly or ginagawa ba nila yung job nila at the best interest of the owners.
Bakit nagraraise ang agency Problem?
Hindi nagtratrabaho ng maayos yung employee and because of the Fringe benefits bigla magtratrabaho na
siya ng ok . Kumbaga naging self interest nalang hindi na siya nagwowork at the best interest ng mga
owners.
Corporate social Responsibility – a business outlook that acknowledge a firm's responsibilities to its
stakeholders and the natural environment. (Nagproprotekta ng mga consumers ,pagbabayd ng fair widget
sa mga employee, maintaining hiring practices and conditions for employees. Supporting education and
involved clean environment so it is appropriate for the management to consider the interest of the
stakeholders ( sila yung mga creditors, communities, employees)
Ultimate Goal ng Financial management
– to maximize shareholders, kung hindi mo icoconsider yung shareholders paano ka magkakaroon ng
profit, or magiging ok yung business. We should consider the interest of the stakeholders other than
shareholders. To attain the ultimate goal to maximize shareholders.

Corporate Governance
– process of monitoring managers and aligning their incentives with shareholders goals. ( Yung mga
company is govern, and to what purpose ,ina identify niya kung sino yung may power, sino yung
accountable, and sino ang dapat gagawa ng decision. Ensure the business have appropriate decisions
process)
– because shareholders are usually inactive, the firm actually seems to belong to management. Generally
speaking , the investing public does not know what goes on at the Firm's operational level.
– Managers handle the day to day operations, and they know that their work is mostly unknown to
investors.
– The lack of supervision demonstrates the need for a monitor.

SARBANES OXLEY ACT OF 2002 (SOX)

– The Sarbanes Oxley (SOX) Act of 2002 came in response to highly publicized corporate financial
scandals earlier that decade.
– the act created strict new rules for accountants, auditors, and corporate officers and imposed more
stringent record keeping requirements.
– The act of also added new criminal penalties for violating securities laws