MFL - AE19-FM - Module 11

SELF-PACED LEARNING MODULE
COLLEGE DEPARTMENT
MODULE 1
Subject:
FINANCIAL MANAGEMENT
AISAT COLLEGE – DASMARIÑAS, INC.
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INFORMATION SHEET PR-1.1.1

Unit Accounting
Module NATURE AND PURPOSE OF FINANCIAL MANAGEMENT
AE19-FM Financial Management Units: 6 Page |2
“NATURE AND PURPOSE OF FINANCIAL MANAGEMENT”
Financial Management, also referred as managerial finance, corporate finance, and business finance,
is a decision-making process concerned with planning, acquiring and utilizing funds in a manner that
achieves the firm's desired goals. It is 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, principle &, 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 to governments.
THE GOAL OF FINANCIAL MANAGEMENT
Assuming that we confine ourselves to for-profit businesses, the goal of financial management is to
make money and add value for the owners. This goal, however, is a little vague and a more precise
definition is needed in order to have an objective basis for making and evaluating financial decisions.
The financial manager in a •business enterprise must make decision for the owners of the firm. He must
act in the owners' or shareholders' best interest by making decisions that increase the value of the firm
or the value of the stock.
The appropriate goal for the financial manager can thus be stated as follows:
The goal of financial management is to maximize the current value per share of the existing stock or
ownership in a business firm.
SCOPE OF FINANCIAL MANAGEMENT
Traditionally, financial management is primarily concerned with acquisition, financing and management
or assets of business concern in order to maximize the wealth of the firm for its owners. The basic
responsibility of the Finance Manager is to acquire funds needed by the firm and investing those funds
in profitable ventures that will maximize the firm's wealth, well as, generating returns to the business
concern. Briefly, the traditional view of Financial Management looks into the following functions that a
financial manager of a business firm will perform:
1. Procurement of short-term as well as long-term funds from financial institutions
2. Mobilization of funds through financial instruments such as equity shares, preference shares,
debentures, bonds, notes. and so forth
3. Compliance with legal and regulatory provisions relating to funds procurement, use and
distribution as well as coordination of the finance function with the accounting function.
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

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1 Meeting MS. MARY JOY F. LABAJO MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
Unit Accounting
Globalization has caused to integrate the national economy with the global economy and has created a
new financial environment which brings new opportunities and challenges to the business enterprises.
This development has also led to total reformation of the finance function and its responsibilities in the
organization. Financial management has assumed a much greater significance and the role of the
finance managers has been given a fresh perspective.
In view of modern approach, the Finance Manager is expected to analyze the business firm and
determine the following:
a. The total funds requirements of the firm
b. The assets or resources to be acquired and
c. The best pattern of financing the assets
TYPES OF FINANCIAL DECISIONS
The three major types of decisions that the Finance Manager of a modern business firm will be involved
in are:
1. Investment decisions
2. Financing decisions
3. Dividend decisions
All these decisions aim to maximize the shareholders' wealth through maximization of the firm's wealth.
 INVESTMENT DECISIONS
The investment decisions are those which determine how scarce or limited resources in terms of
funds of the business firms are committed to projects. Generally, the firm should select only
those capital investment proposals whose net present value is positive and the rate of return
exceeding the marginal cost of capital. It should also consider the profitability of each individual
project proposal that will contribute to the overall profitability of the firm and lead to the
creation.
 FINANCING DECISIONS
Financing decisions assert that the mix of debt and equity chosen to finance investments should
maximize the value of investments made,
The finance decisions should consider the cost of finance available in different forms and the
risks attached to it. The principle of financial leverage or trading on the equity should be
considered when selecting the debt-equity mix or capital structure decision. If the cost of capital
of each component is reduced, the overall weighted average cost of capital and minimization of
risks in financing will lead to the profitability of the organization and create wealth to the owner.

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 DIVIDEND DECISIONS
The dividend decision is concerned with the determination of quantum of profits to be
distributed to the owners, the frequency of such payments and the amounts to be retained by
the firm.
The dividend distribution policies and retention of profits will have ultimate effect on the firm's
wealth. The business firm should retain its profits in the form of appropriations or reserves for
financing its future growth and expansion schemes. If the firm, however, adopts a very
conservative dividend payments policy, the firm's share prices in the market could be adversely
affected. An optimal dividend distribution policy therefore will lead to the maximization of
shareholders' wealth.
SIGNIFICANCE OF FINANCIAL MANAGEMENT

The importance of financial management is known for the following aspects:
 BROAD APPLICABILITY
Any organization whether motivated with earning profit or not having cash flow requires to be
viewed from the angle of financial discipline. The principles of finance are applicable wherever
there is cash flow. The concept of cash flow is one of the central elements of financial analysis.
planning, control, and resource allocation decisions. Cash flow is important because the financial
health of the firm depends on its ability to generate sufficient amounts of cash to pay its
employees, suppliers, creditors, and owners.
 REDUCTION OF CHANCES OF FAILURE

A firm having latest technology, sophisticated machinery, high caliber marketing and technical
experts, and so forth may still fail unless its finances are managed on sound principles of
financial management. The strength of business lies in its financial discipline. Therefore, finance
function is treated as primordial which enables the other functions like production, marketing,
purchase, and personnel Inin the achievement of organizational goal and objectives.
 MEASUREMENT OF RETURN ON INVESTMENT

Anybody who invests his money will expect to earn a reasonable return on his investment. The
owners of business try to maximize their wealth. Financial management studies the risk-return
perception of the owners and the time value of money. It considers the amount of cash flows
expected to be generated for the benefit of owners, the timing of these cash flows and the risk
attached to these cash flows. The greater the time and risk associated with the expected cash
flow, the greater is the rate of return required by the owners.
RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT, ACCOUNTING AND ECONOMICS
 FINANCIAL MANAGEMENT AND ACCOUNTING

Just as marketing and production are major functions in an enterprise, finance too is an
independent specialized function and is well knit with other functions. Financial management is
a separate management area. In many organizations, accounting and finance functions are
intertwined and the finance function is often considered as part of the functions of the
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accountant. Financial management is, however, something more than an art of accounting and
bookkeeping.
Financial statements help managers to make business decisions involving the best use of cash,
the attainment of efficient operations, the optimal allocation of funds among assets, and the
effective financing of investment and operations. The interpretation of financial statements is
achieved partly by using financial ratios, pro forma and cash flow statement.
 FINANCIAL MANAGEMENT AND ECONOMICS

Financial managers can make better decisions if they apply these basic economic principles. For
example, economic theory teaches us to seek the best allocation of resources. To this end,
financial managers are given the responsibility to find the best and least expensive sources of
funds and to invest these funds into the best and most efficient mix of assets. In doing so, they
try to find the mix of available resources that will achieve the highest return at the least risk
within the confines of an expected change in the economic climate. Good financial management
has a sound grasp of the way economic and financial principles impact the profitability of the
firm.
Financial managers do a better job when they understand how to respond effectively to changes
in supply, demand, and prices (firm-related micro factors), as well as to more general and overall
economic factors (macro factors). Learning to deal with these factors provides important tools
for effective financial planning.
The finance manager must be familiar with the microeconomic and macroeconomic
environment aspects of business.
Microeconomics deals with the economic decisions of individuals and firms. It focuses on the
optimal operating strategies based on the economic data of individuals and firms. The concept
of microeconomics helps the finance manager in decisions like pricing, taxation, determination
of capacity and operating levels, break-even analysis, volume-cost-profit analysis, capital
structure decisions, dividend distribution decisions, profitable product-mix decisions, fixation of
levels of inventory, setting the optimum cash balance, pricing of warrants and options, interest
rate structure, present value of cash flows, and so forth.
Macroeconomics looks at the economy as a whole in which a particular business concern is

operating. Macroeconomics provides insight into policies by which economic activity is
controlled. The success of the business firm is influenced by the overall performance of the
economy and is dependent upon the money and capital markets, since the investible funds are
to be procured from the financial markets. A firm is operating within the institutional
framework, which operates on the macroeconomic theories. The government's fiscal and
monetary policies will influence the strategic financial planning of the enterprise. The finance
manager should also look into the other macroeconomic factors like rate of inflation, real
interest rates, level of economic activity, trade cycles, market competition both from new
entrants and substitutes, international business conditions, foreign exchange rates bargaining
power of buyers, unionization of labor, domestic savings rate, depth of financial markets,

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availability of funds in capital market, growth rate of economy, government's foreign policy,
financial intermediation, banking system, and so forth.

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 FINANCIAL MANAGEMENT AND PUBLIC RESPONSIBILITY

Finance is a very challenging and rewarding field. Financial managers are given the responsibility
to plan the future growth and direction of a firm which can greatly affect the community in
which it is based. The decisions reached by a financial manager ultimately represent a blend of
theoretical, technical and judgmental matters that must reflect the concerns of society.
The primary goal for managers of publicly owned company implies that decisions should be
made to maximize the long-run value of the firm's equity shares. At the same time, managers
know that this does not mean maximize shareholder value “at all costs". Managers have the
obligation to behave ethically, and they must follow the law and other society-imposed
constraints.
Financial managers have certain obligations to those who entrust them with the running of the
firm. They must have a clear sense of ethics and must avoid pay offs or other forms of personal
gain. Managers should not engage in practices that can damage the image of the firm but should
articulate as much as possible in social activities to demonstrate that they are cognizant of the
importance of the. community and those who buy their products or services.
In short, financial managers. Must reconcile social and environmental requirements with profit-
making motive. Adherence to social values may not produce the most efficient use of assets or
the lowest Costs, but it will enhance the image of the firm. Looking after the interest in
community, setting up of training facilities, casing for the safely and the welfare of the workers,
providing free college education for the dependents of the employees can produce long-term
benefits in the form of higher productivity and more harmonious relationships between labor
and management. Although there may be conflict between promoting socially responsible
programs and the profit motive, maintaining some concern for social needs when pursuing the
goal of maximizing the wealth of the firm is a primary responsibility of a firm.

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“RELATIONSHIP OF FINANCIAL OBJECTIVES TO ORGANIZATIONAL

STRATEGY AND OBJECTIVES”
Firms have numerous goals but not every goal can be attained without causing conflict in reaching other
goals. Conflicts often arise because of the firm's many constituents who include shareholders, managers,
employees, labor unions, customers, creditors, and suppliers. There are those who claim that the firm's
goal to maximize sales or market share; others believe the role of business is to provide quality products
and service; still others feel that the firm has a responsibility for the welfare of society at large. For
example, the objective may be stated in such broad terms as:
 It is the goal of the company to be a leader in technology in the industry, or

 To achieve profits through a high-level manufacturing efficiency, or
 To achieve a high degree of customer satisfaction.
For the purpose though of measuring performance and degree of control, it is necessary to set
objectives or goal in more precise terms. The objectives are usually in quantitative terms and are set
within a time frame. The setting of physical targets to be accomplished within a set time period would
provide the basis of conversion of the targets into financial objectives.
STRATEGIC FINANCIAL MANAGEMENT

Strategic planning is long-range in scope and has its focus on the organization as a whole. The concept is
based on an objective and comprehensive assessment of the present situation of the organization and
the setting up of targets to be achieved in the context of an intelligent and knowledgeable anticipation
of changes in the environment. The strategic financial planning involves financial planning, financial
forecasting, provision of finance and formulation of finance policies which should lead the firm's survival
and success.
The strategic financial planning should enable the firm to judicious allocation of funds, capitalization of
relative strengths, mitigation of weaknesses, early identification of shifts in environment, counter
possible actions of estimation competitor, of reduction in financing costs, effective use of funds
deployed, timely funds requirement, identification of business and financial risk, and so forth.
A company's strategic or business plan reflects how it plans to achieve its goals and objectives. A plan's
success depends on an effective analysis of market demand and supply. Specifically, a company must
assess demand for its products and services and assess the supply of its inputs (both labor and capital).
The plan must also include competitive analyses, opportunity assessments and consideration of business
threats.

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Historical financial statements provide insight into the success$ of a company's strategic plan and are an
important input of the planning process. These statements highlight portions of the strategic plan that
proved profitable and, thus, warrant additional capital investment. They also reveal areas that are less
effective and provide information to help managers develop remedial action.
Once strategic adjustments are planned and implemented, the resulting financial statements provide
input into the planning process for the following year, and this process begins again. Understanding a
company's strategic plan helps focus our analysis of the company's short-term and long-term financial
objectives by placing them in proper context.
SHORT-TERM AND LONG-TERM FINANCIAL OBJECTIVES OF A BUSINESS ORGANIZATION
Among are the primary financial objectives of a firm are the following:
SHORT AND MEDIUM-TERM

 Maximization of return on capital employed or return on investment
 Growth in earnings per share and price earnings ratio through maximization of net
income or profit and adoption of optimum level of leverage
 Minimization of finance charges
 Efficient procurement and utilization of short-term, medium-term, and long-term funds
LONG-TERM
• Growth in the market value of the equity shares through maximization of the
firm's market share and sustained growth in dividend to shareholders
• Survival and sustained growth of the firm
There have been a number of different, well-developed viewpoints concerning what the primary
financial objectives of the business firm should be. The competing viewpoints are:
• The owner's perspective which holds that the only appropriate goal is to
maximize shareholder or owner 's wealth, and.
• The stakeholders' perspective which emphasizes social responsibility over
profitability (stakeholders include not only the owners and shareholders, but
also include the business's customers, employees and local commitments).

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AE19-FM Financial Management Units: 6 P a g e | 10
To reiterate, the primary financial goal of the firm is to maximize the wealth of its existing shareholders
or owners. Therefore, the overriding premise of financial management is that the firm should be
managed to enhance owner(s) well-being. shareholder’s wealth depends on both the dividends paid and
the market price of the equity shares. Wealth is maximized by providing the shareholders with the
target attainable combination of dividends per share and share price appreciation. While this may not
be a perfect measure of shareholders' wealth, it is considered one of the best available measures.
The wealth maximization goal is advocated on the following grounds:

• It considers the risk and time value of money
• It considers all future cash flow, dividends and earnings per share
• It suggests the regular and consistent dividend payments to the shareholders
• The financial decisions are taken with a view to improve the capital appreciation of the
share price
• Maximization of firm’s value is reflected in the market price of share since it depends on
shareholder's expectations regarding profitability, long-run prospects, timing difference
of returns, risk distribution of returns of the firm.
RESPONSIBILITIES TO ACHIEVE THE FINANCIAL OBJECTIVES
INVESTING
The finance manager is responsible for determining how scarce resources or funds are committed to
projects. The investing function deals with managing the firm's assets. Because the firm has numerous
alternative uses of funds, the financial manager strives to allocate funds wisely within the firm. This task
requires both the mix and type of assets to hold. The asset mix refers to the amount of pesos invested in
current and fixed assets.
The investment decisions should aim at investments in assets only when they are expected to earn a
return greater than a minimum acceptable return which is also called a; hurdle rate. This minimum
return should consider whether the money raised from debt or equity meets the returns on investments
made elsewhere on similar investments.
The following areas are examples of investing decisions of a finance manager:

a. Evaluation and selection of capital investment proposal
b. Determination of the total amount of funds that a firm can commit for investment
c. Prioritization of investment alternatives
d. Funds allocation and its rationing
e. Determination of the levels of investments in working. capital (i.e. inventory, receivables, cash,
marketable securities and its management)

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f. Determination of fixed assets to be acquired

g. Asset replacement decisions
h. Purchase or lease decisions
i. Restructuring reorganization mergers and acquisition j, Securities analysis and portfolio
management.
FINANCING
The finance manager is concerned with the ways in which the firm obtains and manages the financing it
needs to support its investments. The financing objective asserts that the mix of debt and equity chosen
to finance investments should maximize the. value of investments made. Financing decisions call for
good knowledge of costs of raising funds, procedures in hedging risk, different financial instruments and
obligation attached to them. In fund raising decisions, the finance manager should keep in view how and
where to raise the money, determination of the debt-equity mix, impact of interest, and inflation rates
on the firm, and so forth.
The finance manager will be involved in the following finance decisions:

a. Determination of the financing pattern of short-term, medium-term and long-term
funds requirements
b. Determination of the best capital structure or mixture of debt and equity financing.
c. Procurement of funds through the issuance of financial equity shares, preference
shares, bonds, long-term notes, and so forth.
d. Arrangement with bankers, suppliers, and creditors for its working medium-term and
other long-term funds requirement Evaluation of alternative sources of funds
OPERATING
This third responsibility area of the finance manager concerns working capital management. The term
working capital refers to a firm short-term asset (i.e., inventory, receivables, cash, and short-term
investments) and its short-term liabilities (i.e., accounts payable, short-term loans). Managing the firm's
working capital' is a day-to-day responsibility that ensures that the firm has sufficient resources to
continue its operations and avoid costly interruptions. This also involves a number of activities related to
the firm's receipts and disbursements of cash.
Some issues that may have to be resolved in relation to managing a firm's working capital are:
a. The level of cash, securities and inventory that should be kept on hand
b. The credit policy (i.e., should the firm sell on credit? If so, what terms should be extended?)
c. Source of short-term financing (i.e., if the firm would borrow in the short- term, how and where
should it borrow?)
d. Financing purchases of goods (i.e., should the firm purchase its raw materials or merchandise on
credit or should it borrow in the short

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ENVIRONMENTAL "GREEN" POLICIES AND THEIR IMPLICATIONS FOR THE MANAGEMENT OF THE
ECONOMY AND FIRM
Private property rights can promote prosperity and cooperation and at the same time protect the
environment, but do they protect the environment sufficiently? In recent years„ people have
increasingly turned to the government to achieve additional environmental improvements, Sometimes,
people turned to government cause property rights failed to hold polluters accountable for the costs
they were imposing on others. In these "external cost cases", government may be able to Improve
accountability and protect rights more efficiently by regulation. In other instances, people with strong
desires for various environmental amenities (for example, green spaces, hiking trails and wilderness
lands) want the government to force others to help pay for them.
Courts help owners protect their property against invasions by others, including polluters. In some
cases, however, it is difficult if not impossible to define, establish and fully protect property rights. This is
particularly true when there is either a large number of polluters or a large number of people harmed by
the emissions, or both. In these large numbers of cases, high transaction costs undermine the
effectiveness of the property rights — market exchange approach. For example, consider the air quality
in a large city such as Manila or Quezon City. Millions of people are harmed when pollutants are put into
the air. But millions of people also contribute to the pollution as they drive their cars. Property rights
alone will be unable to handle large-number cases like this efficiently. More direct regulations may
generate a better outcome.
Although government regulation is an alternative method of protecting the environment, the regulatory
approach also has a number of deficiencies. First, government regulation is often sought precisely
because the harms are uncertain and the source of the problem cannot be demonstrated, so relief from
the courts is difficult to obtain, but when the harms are uncertain, so are the benefits of reducing them.
Second, by its very nature, regulation overrides or ignores the information and incentives provided by
market signals. Accountability of regulators for the costs they impose is lacking, just as accountability for
polluters is missing in the market sector when secure and tradable property rights are not in place. The
tunnel vision of regulators, each assigned to oversee a small part of the economy, is not properly
constrained by readily observable costs. Third, regulation allows special interests to use political power
to achieve objectives that may be quite different from the environmental goals originally announced.
The global warming issue illustrates all of these problems and the uncertainties that they generate.
People turn to government to get what they cannot get in markets. In many cases' they are seeking to
get what they want with a subsidy from others. Government can provide protection from harms, as in
regulation that reduces pollution, or production of goods and services, as in the provision of national
parks. Government can indeed shift the cost of services from some citizens to others' and can do the
same with benefits from its programs. There is little reason, however' to expect a net increase in
efficiency when the government steps in. That is true in environmental matters, as well as in many other
areas of citizen concern.

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When it is difficult to assign and enforce private property rights, markets often result in outcomes that
are inefficient. This is often the case when large numbers of people engage in actions that impose harm
on others. Government regulation has some premise but also poses some problems of its own.
Global warming could exert a sizeable adverse impact on human welfare, but there is considerable
uncertainty about both its cause and the potential gains that might be derived from regulations such as
those of the Kyoto treaty. Global temperature changes have been observed previously. We do not know
that the current warming is the result of human activity. We do not even know whether on balance, a
warming would exert an adverse impact. These uncertainties increase the attractiveness of adaptation
as an option to regulation.
Market-like schemes can reduce the costs of reaching a chosen environment goal, but the programs
provide little help in choosing the right goal.
Government ownership of national parks, as with other lands, has brought troublesome results along
with benefits, but there seems to be progress in moving closer to market solutions that provide better
information and incentives for government managers.
Given that stock market investors emphasize financial results and the maximization of shareholder
value, one can wonder if it makes sense for a company to be socially responsible. Can companies be
socially responsible and oriented toward shareholder wealth at the same time? Many businessmen
think so and so do most big business establishments that they have adopted well-laid environmental-
saving strategies that can observe such as recycling programs, pollution control, tree-planting activities
and so forth. The benefits come a little at a time, but one can be sure they will add up. If an investor
wants wealth maximization, management that minimizes wastes might do the other little things right
that make a company well-run and profitable.

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“FUNCTIONS OF FINANCIAL MANAGEMENT”
Role of Finance Manager
In striving to maximize owners' or shareholders' wealth, the financial manager makes decisions involving
planning, acquiring, and utilizing funds which involve a set of trade-offs. These financial decisions affect
the market value of the firm's stock which leads to wealth maximization.
It is the responsibility of financial management to allocate funds to current and fixed assets, to obtain
the best mix of financing alternatives, and to develop an appropriate dividend policy within the context
of the firm's objectives. The daily activities of financial management include credit management,
inventory control, and the receipt and disbursement of funds.

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THE FINANCE ORGANIZATION

The financial management function is usually associated with a top officer of the firm such as a Vice
President of Finance or some other Chief Financial Officer (CFO). Figure 3-2 is a simplified organizational
chart that highlights the finance activity in a large firm. As shown, the Vice President of finance
coordinates the activities of the treasurer and the controller. The Controller's office handles cost and
financial accounting, tax payments, and management information systems, The Treasurer's office is
responsible for managing the firm's cash and credit, its financial planning, and its capital expenditures.

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RELATIONSHIP WITH OTHER KEY FUNCTIONAL MANAGERS IN THE ORGANIZATION

Finance is one of the major functional areas of a business. For example, the functional areas of business
operations for a typical manufacturing firm are 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 these products will be sold. However, these
other functional areas could not operate without funds.
CORPORATE GOVERNANCE
Corporate governance is the process of monitoring managers and aligning their incentives with
shareholders goals. In reality, 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 day-to-day operations, and they know that their work is
mostly unknown to investors. This lack of supervision demonstrates the need for monitors. Figure 3-3
shows the people and organizations that help monitor corporate activities.

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The monitors inside a public firm are the board of directors, who are appointed to represent
shareholders' interest. The board hires the CEO, evaluates and can also design compensation contracts
to tie management's salaries to firm performance.
The monitors outside the firm include auditors, analysts, investment banks, and credit rating agencies.
External auditors examine the firm's accounting systems and comment on whether financial statements
fairly represent the firm's financial position. Investment analysts keep tract of the firm's performance,
conduct their own evaluations of the company's business activities, and report to the investment
community.
Investment banks, which help firms access capital markets, also monitor firm performance. Credit
analysts examine a firm's financial strength for its debt holders. The Government also monitors business
activities through the Securities and Exchange Commission (SEC), Bureau of Internal Revenue (BIR),
Bangko Sentral ng Pilipinas (BSP), and so forth.
JOBS IN FINANCE
Finance prepares students for jobs in banking, investments, insurance, corporations and the
government. Accounting students need to know finance, marketing, management and human
resources; they also need to understand finance, for it affects decisions in all those areas. For example,
marketing people propose advertising programs, but those programs are examined by finance people to
judge the effects of the advertising on the firm's profitability. So, to be effective in marketing. one needs
to have a basic knowledge of finance. The same holds for management — indeed, most important
management decisions are evaluated in terms of their effects on the firm's value.
ETHICAL BEHAVIOR
Ethics are of primary importance in any practice of finance. Finance professionals commonly manage
other people's money. For instance, corporate managers control the stockholders' firm, bank employees
perform cash receipts and disbursements functions, and investment advisors manage people's
investment portfolios.
These fiduciary relationships oftentimes create tempting opportunities for finance professionals to make
decisions that either benefit the client or benefit the advisors themselves. Strong emphasis on ethical
behavior and ethics training and standards are provided by professional associations such as the Finance
Executives of the Philippines (FINEX), Bankers Association of the Philippines, Investment Professionals,
and so forth Nevertheless, as with any profession with millions of practitioners, a few are bound to act
unethically.

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“BUSINESS ORGANIZATION AND TRENDS”
THE ORGANIZATION OF THE BUSINESS FIRM
The business firm is an entity designed to organize raw materials, labor, and machines with the goal of
producing goods and/or services. Firms
1. purchase productive resources from households and other firms,
2. transform them into a different commodity, and
3. sell the transformed product or service to consumers
Every society, no matter what type of economy it has, relies on business firms to organize resources and
transform them into products: In market economies, most firms choose their own price, output level,
and methods of production. They get the benefits of sales revenues, but they also must pay the costs of
the resources they use.
Business firms can be organized in one of three ways: as a proprietorship, a partnership, or a

corporation. The structure chosen determines how the owners share the risks and liabilities of the firm
and how they participate in making decisions.
LEGAL FORMS OF BUSINESS ORGANIZATION
Proprietorship
• owned by a single person who has complete control over business decisions
• owns all the firm's assets and is responsible for all its liabilities.
• not separable from the business and is personally liable for all debts of the business. the
financial statements of the business present only those assets and liabilities pertaining to the
business.
Among the advantages of a sole proprietorship are:
1. Ease of entry and exit

A sole proprietorship requires no formal charter and is inexpensive to form and dissolve.
2. Full ownership and control
The owner has full control, reaps all profits and bears all losses.
3. Tax savings
The entire income generated by the proprietorship passes directly to the owner. This may result
in a tax advantage if the owner's tax rate is less than the tax rate of a corporation.
4. Few governments regulations
A sole proprietorship has the greatest freedom as compared with any form of business
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Major disadvantages of the proprietorship form include:
1. Unlimited liability
The owner is personally liable or responsible for any and all business debts. Thus, the owner's
personal assets can be claimed by the creditors if the firm defaults on its obligations.
2. Limitations in raising capital
Fund-raising ability is limited. Resources may be limited to the assets of the owner and growth
may depend on his or her ability to borrow money.
3. Lack of continuity
Upon death or retirement of the owner, the proprietorship ceases to exist.
Therefore, the proprietorship may be an ideal form of business organization when the following
conditions exist:
• The anticipated risk is minimum and adequately covered by insurance.

• The owner is either unable or unwilling to maintain the necessary organizational documents
and tax returns of more complicated business entities.
• The business does not require extensive borrowing.
PARTNERSHIP
• legal arrangement in which two or more persons agree to contribute capital or services to the
business.
• divide the profits or losses that may be derived therefrom.
• may operate under varying degrees of formality.
• a formal partnership may be established using a written contract known as the partnership
agreement which is filed with the Securities and Exchange Commission.
Partnership may be either general or limited.
A general partnership is one in which each partner has unlimited liability for the debts incurred by the
business. General partners usually manage the firm and may enter into contractual obligations on the
firm's behalf. Profits and asset ownership may be divided in any way agreed upon by the partners.
A limited partnership is one containing one or more general partners and one of more limited partners.
The personal liability of a general partner for the firm's debt is unlimited while the personal liability of
limited partners is limited to their investment. Limited partners cannot be active in management.

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Advantages of a partnership include among others the following:
1. Ease of formation
Forming a partnership may require relatively little effort and low start-up costs.
2. Additional sources of capital
A partnership has the financial resources of several individuals.
3. Management base
A partnership has a broader management base or expertise than a sole
proprietorship.
4. Tax implication
A partnership like a proprietorship does not pay any income taxes. The income
or loss of the business is distributed among the partners in accordance with the
partnership and each partner reports his or her portion whether distributed or
not on personal income tax return.
Disadvantages of partnership are:
1. Unlimited liability
General partners have unlimited liability for the debts and litigations of the business.
2. Lack of continuity
A partnership may dissolve upon the withdrawal or death of a general partner, depending on
the provisions of the partnership.
3. Difficulty of transferring ownership
It is difficult for a partner to liquidate or transfer ownership. It varies with conditions set forth in
the partnership agreement.
4. Limitations in raising capital
A partnership may have problems raising large amounts of capital because many sources of
funds are available only to corporations.
CORPORATION
• an artificial being created by law and is a legal entity separate and distinct from its owners.
• may own assets, borrow money and engage in other business entities without directly involving
the owners.
• owners who are also called shareholders do not directly manage the firm Instead they select
managers designated as the Board of Directors to run the firm for them.
• The Board of Directors is authorized to act in the corporation’s behalf.

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The incorporation process is initiated by filing the articles of incorporation and other requirements with
the Securities and Exchange Commission (SEC). articles of incorporation include among others the
following:
• Incorporators
• Name of the corporation
• Purpose of the corporation
• Capital stock
• Authorized shares
After the corporation is legally formed, it will then issue its capital stock. Ownership of this stock is
evidenced by a stock certificate. The corporate bylaws which are rules that govern the internal
management of the company are established by the board of directors and approved by the
shareholders. These bylaws may be amended or extended from time to time by shareholder.
Advantages of a corporation are:
1. Limited liability
Shareholders are liable only to the extent of their investment in the corporation. Thus,
shareholders can only lease what they have invested in the firm's shares, not any other personal
assets. However, limited liability is not all-encompassing. Government may pass through the
corporate shield to collect unpaid taxes. Also, it is not uncommon for creditors to require that
major shareholders personally co-sign for credit extended to the corporation. Thus, upon
default by the business, the creditors may sue both the corporation and shareholders who have
co-signed.
2. Unlimited life
Corporations continue to exist even after death of the owners. maximum legal life of a
corporation is 50 years but may be renewed for the desired additional life not to exceed 50
years.
3. Ease in transferring ownership
Shareholders can easily sell their ownership interest in most corporations by selling their stock
without affecting the legal form of business organizations.
4. Ability to raise capital
Corporations can raise capital through the sale of securities such as bonds to investors who are
lending money to the corporations and equity securities such as common stock to investors who
are the owners.
Disadvantages of a corporation include:
1. Time and cost of formation

Registration of public companies with the SEC may be time-consuming and costly.

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2. Regulation
Corporations are subject to greater government regulations than other forms of business
organizations. Shareholders cannot just withdraw assets from the business. They can only
receive corporate assets when dividends are declared, and these amounts may be subject to
limits imposed by law.
3. Taxes
Corporations pay taxes on income they have earned. The complexity of the subject of taxation
demands the advice of a qualified tax accountant.
IMPORTANT BUSINESS TRENDS

Four important business trends should be noted, namely:
• Increased globalization of business

• Ever improving information technology (IT)
• Corporate governance
• Outsourcing
Globalization of the Firm

Most large corporations operate on a global basis and with good reason: investing abroad has proven to
be highly profitable. Decisions to build plants and produce goods abroad are also motivated by the
attraction of tow-cost labor and the transfer of highly efficient technology that gives competitive price
advantages to foreign operations.
Ever-Improving Information Technology (IT)

Improvements in IT are spurring globalization, and they are changing financial management as it is
practiced in North America, Europe, Southeast Asia and Firms are collecting massive data and using
them takes much of the guesswork out of financial decisions. For example, when Double-Dragon
Corporation is considering a potential site for a new mall, it can draw historical results from thousands
of other stores to predict results at the proposed site. This lowers the risk of investing in new stores.
Corporate Governance
This trend relates to the way the top managers operate and interface with stakeholders. At the same
time, the Securities Exchange (SEC) which has jurisdiction over the shareholders and the information
that must be given has made it easier to activist shareholders to changes the way things are done within
firm. Some years ago, the corporation’s chairman of the board of directors was almost always also the
chief executive officer, and this person decides who would be elected to the board and therefore would
have complete control of the firm's operations. That made it impossible for shareholders to replace a
poor management team.

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Outsourcing
Outsourcing occurs when domestic firms invest and produce goods in foreign countries or when these
firms choose to rely on imports rather than build domestic plans and produce these goods domestically.
Low labor-cost countries, like China, open up new investment opportunities for corporations from the
United States, Europe and Middle East. Growing competitive pressures ate forcing domestic firms to
invest abroad or to import cheap foreign products.
When evaluating the merits of outsourcing a corporate manager is forced to make central decisions.
1. Invest and produce domestically or move a plant overseas.
2. Import cheaper foreign goods to take advantage of low labor and other costs or shift to more
capital-intensive and technologically advanced operations.
3. Invest abroad in order to gain access to new rapidly growing foreign markets.
Outsourcing relieves managers from having to purchase raw materials or to hedge against the risk that
the prices of these raw materials will increase. An outsourcing firm does not have to incur the high costs
of pension plans, health benefits, pollution control, and worker safety. Some risks such as technological
obsolescence and unforeseen changes in demand become less important with outsourcing. These and
other advantages make outsourcing an attractive option.

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“UNDERSTANDING FINANCIAL STATEMENTS”
At this point, it is helpful to imagine yourself z a specific user of financial statements. For example,
assume that you are a manage deciding whether to acquire another company or divest how of a current
do you division? assess and or imagine yourself as an equity or credit analyst communicate an
investment appraisal or credit risk report? This focused perspective will enhance one's learning process
and makes it relevant.
HOW BUSINESS ACTIVITIES ARE REPORTED

To be able to analyze a company effectively or infer its value, it is important that one must understand
the company's business activities. This can be accomplished through the financial statements. Financial
statements report on a company’s performance and financial condition and reveal executive
management's privileged information and insights.
Financial statements serve the needs of different users. The operation of the accounting information
system involves application of accounting standards to produce financial statements that provide the
insight on the business activities of the company under analysis.
Accounting information should be used in the business context in which the information is created. All
companies without exception, plan business activities' finance those activities, invest in those activities
and then, engage in operating activities. Business firms conduct all these activities while confronting
business forces, including market constraints and competitive pressures.
Financial statements also provide crucial input for strategic planning, as well as' information about the
relative success of those plans which can be used to corrective action and make new operating,
investing and financing decisions.
GENERAL OBJECTIVES OF FINANCIAL STATEMENTS

The important objectives of financial statements are:
1. Providing Information for Economic Decisions

The economic decisions that are taken by the users of financial statements require an evaluation
of the ability of an enterprise to generate cash and cash equivalents, and the timing and
certainty of their generation.
This ability ultimately determines the capacity of an enterprise to pay its employees and
suppliers, meet interest payments, repay loans and make distributions to its owners.
2. Providing Information About Financial Position

The financial position of an enterprise is affected by the economic resources such as:
a.) Information about the economic resources controlled by the enterprise and its capacity in
the past to modify these resources is useful in predicting the ability of the enterprise to generate cash
and cash equivalents in the future.
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b.) Information about financial structure is useful in predicting future borrowing needs and how
future profits and cash flows will be distributed among those with an interest in the enterprise.
c.) Information is useful in predicting how successful the enterprise is likely to be in raising
further finance.
d.) Information about 'liquidity and solvency is useful in predicting the ability of the enterprise
to meet the financial commitments as fall due. Liquidity refers to the availability of cash in the near
future after taking account of financial commitments and solvency refers to the availability of cash over
the longer term to meet financial commitments as they fall due.
3. Providing Information About Performance of an Enterprise

Another important objective of the financial statements is that it provides information about the
performance and in particular its profitability, which is required in order to assess potential
changes in the economic resources that are likely to control the future.
4. Providing Information about Changes in Financial Position

The financial statements provide information concerning changes in the financial position of an
enterprise, which is useful in order to assess its investing. financing and operating activities
during the reporting period.
DEMAND FOR FINANCIAL ACCOUNTING INFORMATION

The broad classes of users that demand financial accounting information include the following:
1. Managers and Employees

Management uses financial statements to raise financing for the company' to meet disclosure
requirement and to serve as a basis for executive remuneration and bonuses, for wage negotiations
and to meet disclosure
2. Investors and Analysts

Financial statements are used by these parties to decide whether to buy or sell equity shares.
Expectations about future profitability and the ability to generate cash influence the price of
securities and a company's ability to borrow money at favorable terms.
3. Creditors and Suppliers

Banks and other lenders need financial accounting information to help determine loan terms, loan
amounts, interest rates and required collateral. Suppliers demand financial data to establish credit
terms and to determine their long-term commitment to supply-chain relations.

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4. Shareholders and Directors

Financial accounting information are needed by owners and directors of the company to assess its
profitability and risks, to evaluate managerial performance and to help make leadership decisions.
5. Regulatory and Tax Agencies

The SEC, BIR, BSP and other legal institutions demand financial accounting information to monitor
the business firms' compliance with laws, for public protection, price setting and for setting tax and
other regulatory policies.
6. Customers and Potential Strategic Partners

Customers both current and potential, need accounting information to evaluate a company's ability
to provide products and services as agreed and to assess the company's reliability and staying
power. Potential strategic partners would wish to estimate the firm's profitability to assess the
fairness of returns on mutual transactions and strategic alliances.
7. Other decision makers

Financial accounting information are required for varied purposes by other parties from assessing
damages for environmental abuses to making policy decisions involving economic, social, taxation
and other initiatives.
SOURCES OF INFORMATION ABOUT BUSINESS ENTERPRISE

1. The audited annual report that includes the four financial statements (Statement of Financial Position
(traditionally known as the Balance Sheet Statement), Statement of Comprehensive Income, Statement
'of Stockholders' Equity, and Statement of Cash Flow) with explanatory notes and the management's
discussion and analysis of financial results.
2. The unaudited quarterly or interim reports that include summary version of the four financial
statements and limited additional disclosure.
BENEFITS OF DISCLOSURE
The company’s ability to disclose reliable (audited) accounting information about its products, processes
and other business activities enable them to better compete in capital, labor, input and output markets.
COSTS OF DISCLOSURE
Disclosure costs including political costs are high for highly visible companies such as large
telecommunication conglomerates (e.g., PLDT and Digitel), oil companies and software companies
because they are favorite targets of public scrutiny.

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CONSTRAINTS ON RELEVANT AND RELIABLE INFORMATION
1. Timeliness
If there is undue delay in the reporting of information, it may lose its relevance. Management may
need to balance the relative merits of timely reporting and the provision of reliable information.
2. Balance Between Benefit and Cost

The balance between benefit and cost is a pervasive constraint rather than a qualitative
characteristic. The benefits derived from information Should exceed the cost of providing it. The
evaluation of benefits and costs is, however, substantially a judgmental process.
3. Balance Between Qualitative Characteristics

In practice, a balancing or trade-off between qualitative characteristics is often necessary. Generally,
the aim is to achieve an appropriate balance among the characteristics in order to meet the
objective of financial statements. The relative importance of the characteristics in different cases is
a matter of professional judgment.
4. True Fair View or Fair Presentation

Financial statements are frequently described as showing a true and fair view of the financial
position, performance and changes in financial position of an enterprise. Although, this framework
does not deal directly with such concepts, the applications of the principal qualitative
characteristics and of appropriate accounting standards, normally results in financial statements
that convey what is generally understood as a true and fair view of such information.
FINANCIAL STATEMENTS
Figure 5-1 shows how these statements are interconnected across time. A Statement of Financial
Position reports on a company's financial position at a point in time. The Statement of Comprehensive
Income, Statement of Stockholders' Equity and the Statement of Cash Flows report on performance over
a period of time.

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LINKAGE OF FINANCIAL STATEMENTS

The four financial statements are linked with each other and linked across time. This linkage is also
known as articulation. The succeeding section demonstrates the articulation of financial statements
using Orange Inc.
The statement of financial position and statement of comprehensive income are linked via retained
earnings. Retained earnings are updated each period and reflect cumulative income that has not yet
been distributed to shareholders. Figure 5-2 shows Orange Inc. retained earnings reconciliation for
20X4.
Orange Inc. begins the fiscal year 20X3-20X4 with assets of P17.205 million, consisting of cash for
P6.392 million and noncash assets for PI 0.813 million. These investments are financed with P7.221
million from nonowners and P9.984 million from shareholders. The owner financing consists of
contributed capital of P4.355 million, retained earnings ofP5.607 million and other stockholders' equity
of P22 million.
Figure 5-3 shows statement of financial position at the beginning and end of Orange Inc. The statement
of cash flows explains how operating, investing and financing activities increase the cash balance by
P2.960 million from P6.392 million at the beginning of the year to P9.352 million at year-end.
Orange Inc.'s P3.496 million net income reported on the income statement is also carried over to the
statement of shareholders' equity. The net income explains nearly all of the change in retained earnings
reported in the statement of shareholders' equity because Orange Inc. paid no dividends in that year
(Other adjustments reduced retained earnings by P.002 million).

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There is an order to financial statement preparation. First, a company prepares its income statement
using the statement of comprehensive income accounts. It then uses the net income number and
dividend information to update the retained earnings account. Second, it. prepares the statement of
financial position using the updated retained earnings account along with the remaining statement of
financial position accounts from the trial balance. Third, it prepares the statement Of stockholders'
equity. Fourth, it prepares the statement Of cash flows using information from the cash accounts and
other sources.

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STATEMENT OF FINANCIAL POSITION

A Statement of Financial Position reports a company's financial position at a point in time, the
company's resources (assets) namely, what the company owns and also the sources of asset financing.
There are two ways a company can finance assets:
1. Owner financing. It can raise money from shareholders,

2. Nonowner financing. It can also raise money from banks or other creditors and suppliers.
This means that both owners and nonowners hold claims on company assets. Owner claims on assets
are referred to as Equity, and nonowner claims are referred to as Liabilities (or debt). Since all financing
must be invested in something we obtain the following basic relation: (investing = financing). This
equality is called the accounting equation which follows: (assets = liabilities + owners' equity).

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Investing Activities
Statement of financial position is organized like the accounting equation. Investing activities are
represented by the company's assets. These assets are financed by a combination of nonowner
financing (liabilities) and owner financing (equity).
Financing Activities
Assets must be paid for, and funding is provided by a combination of owner and nonowner financing.
Owner (or equity) financing includes resources contributed to the company by its owners along with any
profit retained by the company. Nonowner (creditor or debt) financing is borrowed money. We
distinguish between these two financing sources for a reason: borrowed money entails a legal obligation
to repay amounts owed, and failure to do so can result in severe consequences for the borrower. Equity
financing entails no such obligation for repayment.
Some questions that a reader of the Statement of Financial Position of Blue Company might have at this
early stage are:
 Blue Company reports P88.658 million of cash on its 20X4 statement of financial position, which
is 16% of total assets. Many investment-type companies such as Blue Company and high-tech
companies such as Cisco Systems carry high levels of cash; Why is that? Is there a cost to holding
too much cash? Is it costly to carry too little cash?

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 The relative proportion of short-term and long-term assets is largely dictated by companies'
business models. Why is this the case? Why is the composition of assets on statement of
financial position for companies in the same industry similar?
 What are the trade-offs in financing a company by owner versus nonowner financing? If
nonowner financing is less costly, why don't we see companies financed entirely with borrowed
money?
 How do shareholders influence the strategic direction of a company? How can long-term
creditors influence strategic direction?
 Most assets and liabilities are reported on the statement of financial position at their acquisition
price, called historical cost. Would reporting assets and liabilities at fair values be more
informative? What problems might fair-value reporting cause?
Review the Blue Company Statement of Financial Position summarized in Figure 5-4 and think about
these questions.
Working Capital
Current assets are often called working capital because these assets “turn over” that is, they are
used and then replaced throughout the year.
Net working capital is the difference between current assets minus current liabilities while net
operating working capital is the difference between current assets and non-interest-bearing current
liabilities.
STATEMENT OF COMPREHENSIVE INCOME

The statement of comprehensive income reports on a company's performance over a period of time
and lists amounts for revenues (also called sales), expenses and other comprehensive income.
Revenues less expenses yield the bottom-line net income amount. Figure 5-5 shows the Blue
Company Statement of Comprehensive Income. Refer to its income statement to verify the
following: revenues = P236.490 million; expenses = n 10,064 million; and net income P26.426
million. Net income reflects the profit (also called earnings) to owners for that specific period.

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Operating Activities
Operating activities use company resources to produce, promote and sell its products and services.
These activities extend from input markets involving suppliers of materials and labor to a company's
output markets involving customers of products and services. Input markets generate most expenses (or
costs) such as inventory, salaries, materials and logistics. Output markets generate revenues (or sales) to
customers. Output markets also generate some expenses such as marketing and distributing products
and services to customers. Net income arises when revenues exceed expenses. A loss occurs when
expenses exceed revenues.
The following questions might be considered regarding the Statement of Comprehensive Income.
• Assume that a company sells a product to a customer who promises to pay in 30 days. Should
the seller recognize the sale when it is made or when cash is collected?
• When a company purchases a long-term asset such as a building, its cost is reported on the
statement of financial position as an asset. Should a company, instead record the cost of that
building as an expense when it is acquired? If not, how should a company report the cost of that
asset over the course of its useful life?
• Manufacturers and merchandisers report the cost of a product as an expense when the product
sale is recorded. How might we measure the costs of a product that is old by a merchandiser?
By a manufacturer?
• If an asset, such as building, increases in value that increase is not reported as income until the
building is sold, if ever. What concerns arise if we record increases in asset values as part of
income, when measurement of that increase is based on appraised values?
• Employees commonly earn wages that are yet to be paid at the end particular period. Should
their wages be recognized as an expense in the period that the work is performed, or when the
wages are paid?
• Companies are not allowed to report profit on transactions relating to their own stock. That is,
they don't report income when stock is sold, they report an expense when dividends are paid to
shareholders. Why is this the case?
• Review the Blue Company Statement of Comprehensive Income summarized in Figure 5-5 and
think about these questions.
STATEMENT OF STOCKHOLDERS' EQUITY

The statement of stockholders' equity reports on changes in key types of equity over a period of time.
For each type of equity, the statement reports the beginning balance, a summary of the activity in the
account during the year and the ending balance.

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STATEMENT OF CASH FLOWS

The statement of cash flows reports the change (either an increase or decrease) in a company's cash
balance over a period of time. The statement reports on cash inflows and outflows from operating,
investing and financing activities over a period of time.

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Consider the following questions regarding the Statement of Cash flows:
• What is the usefulness of the statement of cash flows? Do the statement of financial position
and income statement provide sufficient cash flow information?
• What types of information are disclosed in the statement of cash flows and why are they
important?
• What kinds of activities are reported in each of the operating, investing and financing sections of
the statement of cash flows? How is this information useful?
• Is it important for a company to report net cash inflows (positive amounts) relating to operating
activities over the longer term? What are the implications if operating cash flows are negative
for an extended period of time?
• Why is it important to know the composition of a company's investment activities? What kind of
information might we look for? Are positive investing cash flows favorable?
• Is it important-to know the source of a company's financing activities? What questions might
that information help us answer?
• How might the composition of operating, investing and financing cash flows change over a
company's life cycle?
• Is the bottom-line increase in cash flow the key number? Why or why not?

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SELF-PACED LEARNING MODULE

AISAT COLLEGE – DASMARIÑAS, INC.

INFORMATION SHEET PR-1.1.1

“NATURE AND PURPOSE OF FINANCIAL MANAGEMENT”

THE GOAL OF FINANCIAL MANAGEMENT

SCOPE OF FINANCIAL MANAGEMENT

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

TYPES OF FINANCIAL DECISIONS

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SIGNIFICANCE OF FINANCIAL MANAGEMENT

 REDUCTION OF CHANCES OF FAILURE

 MEASUREMENT OF RETURN ON INVESTMENT

RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT, ACCOUNTING AND ECONOMICS

 FINANCIAL MANAGEMENT AND ACCOUNTING

 FINANCIAL MANAGEMENT AND ECONOMICS

Macroeconomics looks at the economy as a whole in which a particular business concern is

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

 FINANCIAL MANAGEMENT AND PUBLIC RESPONSIBILITY

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

“RELATIONSHIP OF FINANCIAL OBJECTIVES TO ORGANIZATIONAL

 It is the goal of the company to be a leader in technology in the industry, or

STRATEGIC FINANCIAL MANAGEMENT

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SHORT-TERM AND LONG-TERM FINANCIAL OBJECTIVES OF A BUSINESS ORGANIZATION

SHORT AND MEDIUM-TERM

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

The wealth maximization goal is advocated on the following grounds:

RESPONSIBILITIES TO ACHIEVE THE FINANCIAL OBJECTIVES

The following areas are examples of investing decisions of a finance manager:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

f. Determination of fixed assets to be acquired

The finance manager will be involved in the following finance decisions:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

“FUNCTIONS OF FINANCIAL MANAGEMENT”

Role of Finance Manager

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

THE FINANCE ORGANIZATION

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

RELATIONSHIP WITH OTHER KEY FUNCTIONAL MANAGERS IN THE ORGANIZATION

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

“BUSINESS ORGANIZATION AND TRENDS”

THE ORGANIZATION OF THE BUSINESS FIRM

Business firms can be organized in one of three ways: as a proprietorship, a partnership, or a

LEGAL FORMS OF BUSINESS ORGANIZATION

Among the advantages of a sole proprietorship are:

1. Ease of entry and exit

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

Major disadvantages of the proprietorship form include:

• The anticipated risk is minimum and adequately covered by insurance.

Partnership may be either general or limited.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

Advantages of a partnership include among others the following:

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

Advantages of a corporation are:

Disadvantages of a corporation include:

1. Time and cost of formation

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

IMPORTANT BUSINESS TRENDS

• Increased globalization of business