MODULE HENTRE (ENTREPRENEURSHIP)

Chapter 10 : Managing the Finance Function

Objectives:

1 1. Determine the finance function

2 2. What is investment decision and financing decision
3

Seven Important Processes of the Finance Function

1. Financing – aims to (1) minimize the cost of funds raised to finance
investments, (2) remain financially liquid and solvent, (3) achieve financial
flexibility, (4) maintain financial control, and (5) minimize financial risk
2. Investing – aims to (1) maximize returns, (2) optimize liquidity and solvency
position, (3) achieve investment flexibility, (4) control the assets, and (5)
minimize the investment risk
3. Negotiating and Deal-Making – involves external business deals like joint
ventures and partnership agreements, as well as internal business deals such
as internal budget deliberations, collective bargaining agreements, and others.
4. Administering – managing people, information, processes, systems, and
policies
5. Numbers Generation, Analysis, and Reporting – collecting all corporate
information and generating all the numbers needed for translation into
accounting entries, financial reports, and management control and information
systems
6. Cash and Treasury Management – orchestrating the flow of funds, starting
from their sourcing and ending in their optimal usage
7. Evaluating and Planning – orchestrating the entire corporate planning
process and spearheads the budgeting effort

Finance Person – the harnesser, allocator, and provider of funds; the balancer of growth,
profits, and sustainability; the gatherer of information, and; reporter of information for
presentation to the board and the enterprise managers.

Financial Plan – brings the overall corporate vision, mission, and policies and the
corporate financial objectives and performance indicators together

Investment and Financing Decision Criteria and Sub-Objectives

Financing Analytical Tools and Techniques Investment

Decision Decision
Sub- Financing Both Investing Sub-
Objectives Objectives
 Cost of Debt
 ROI / ROA/
 Cost of
ROS / ROE /
Minimize Equity Maximize
IRR / NPV /
Costs  WACC Returns
EPS
 Credit  Market Price
Ratings
 Current Ratio
 Quick Ratio Optimize
Remain
 Net Working  Cash Flow  Liquidity for Liquidity and
Liquid and
 Capital  Funds Flow Investment Leverage
Solvent
 Assets/Equity Position
 Debt/Equity
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 High
Sustainable
Growth Rate
 Coverage  Market
Achieve Achieve
Ratios Valuation of
Financial Investment
 EBITDA Assets
Flexibility Flexibility
 Overage  Asset
Salability /
Disposability

 Condition of
Maintain Assets
 Capital  Legal Maintain
Financial  Asset Liens
Structure Analysis Asset Control
Control  Asset
Insurance
 Cash Flows
 Funds Flow
 Solvency  Sensitivity
Minimize Minimize
Ratios Analysis
Financial Investment
 Assets/Equity  Contingent
Risk Risk
 Debt/Equity Liabilities
 Fall Back
Positions

What should the Finance Person must be vigilant about?

 Liabilities Management - raise funds with the lowest weighted average cost of
capital without losing control and flexibility and incurring high financial risks
 Assets Management – invest funds in projects or asset with the highest possible
returns at reasonable business risks while maintaining a modicum of flexibility and
control
 Monitor the flow of funds and ensure that they keep on circulating – means
preventing funds from “freezing”
 Assure uninterrupted and fast circulation of funds – in order to hasten the high
“turnover” of funds
 Keep the funds safe – place them in high-yielding marketable securities if not
immediately needed, and release them for operations and for asset build-up as
required on a just-in-time basis

Three Important Performance Indicators

1. Customer Satisfaction – concerned with delighting customers by meeting their
quality specifications
2. Market Performance – attaining market target such as sales
evels, reach, and efficiency
3. Financial Performance – hopes to achieve the financial bottom
line results such as return on sales, assets, and equity leading to
increases in the market price of company stocks

Market Evaluation and Planning – endeavors to bring the products or services to the
marketplace successfully

Transforming Unit – the factory or the service shop

The Six Ms of Input

1. Money
2. Material
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3. Machinery
4. Manpower
5. Methods
6. Management

The Seven Ps of Marketing

1. Positioning
2. Product
3. Package
4. Price
5. People
6. Place
7. Promotion

The Four Ps of Marketing

1. Product
2. Price
3. Place
4. Promotion

Please refer to the link below for a Documentary about:

 Factors influencing investment decision

 https://www.youtube.com/watch?v=tM5cDJOLqI0
 Financing decision
 https://www.youtube.com/watch?v=3Ep1TdEiOuo
 Finance Function
 https://www.youtube.com/watch?v=FoJQDP14t0g

Reference:
www.rexpublishing.com.ph
Entrepreneurship by Dr. Eduardo A. Morato Jr.