HCCC

Introduction To
Financial Management
At the end of the chapter, the learners are able to:
 Define Finance;
 Describe who are responsibility for financial management
within an organization;
 Describe the primary activities of the financial manager;
 Describe how the financial manager helps in achieving the
goal of the organization; and
 Describe the role of financial institutions and markets.
 All people need money to live. While it is true that
the love of money is the root of all evil, the
prudent and wise use of money can result in many
good things – a better life and a more secured
future.

Introduction
In the long run, after studying you will land a job to
earn money on your own, to become financially
independent, and making financial decisions. In
making decisions it is important that you consider
the financial environment where a financial system
operates.
What is Finance?

Finance is the study of how the players in a

financial system acquire, spend, manage, and
make other sound financial decisions concerning
money and other financial resources.
 As a medium of exchange
 Anything used as a measure of value in exchange for goods and services;
currency, checks, etc.
 Something such as a precious metal that is commonly used in a specific

3 Basic area or among a certain group of people as money.

 Money is used as an intermediary to avoid the inconvenience of the
coincidence of wants

Functions As a store of value

 Use money to store purchasing power for later use

of Money  Saving money to make purchases or pay bills later or

between pay periods

As a standard of value

 Money is used to measure a value

 It allows to measure and compare value using a scale
Three Important Concepts in
making sound financial decisions

More value is preferred than The sooner cash received, Less-risky assets are more
less the more valuable it is valuable than or preferred over
riskier assets.
What are the reasons to Study Finance?

To be able to manage money or financial resources

---Economics underscores that a resources is something that is scarce.
To be able to make sound economic decisions
---Decisions being made by individuals, businesses, and governments affect
the entire economy.
To be able to arrive at sound personal and business investment decision
---It emphasizes that when individuals and businesses make investment
decisions, they have to do this with much prudence. Prudence requires
a careful assessment of the situation, a consideration of the available
alternatives, and sensitivity analysis highlighting pessimistic and
optimistic scenarios

To be able to understand the career path available to finance professionals

--- Knowing finance entails knowing as well the job opportunities
available to finance professionals
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 Commerce and Industry

Credit analyst
Evaluating credit applications

Investment Researcher Security Analyst

Conducting research on investment
opportunities Analyzing and making recommendations on
the investment potential of specific
securities
 Government
 Administrative Clerk – assisting in daily
unit administration functions
 Examiner --- performing compliance
field work

Careers in Finance
Academe
 Lecturer – teaching basic finance
subjects
 Research assistant --- assisting
lead researchers in data gathering
 Financial Institutions and markets
Financial Institutions Are organizations or

The Financial
intermediaries that help the financial system operate
efficiently and transfer funds from depositors and
investors to individuals, businesses, and governments

Environment that seek to spend or invest the funds in tangible

assets.
Financial Markets is a broad term that describes any
market place where trading of securities such as
shares, bonds, and currencies occurs. In Philippines
we have PSE.

Investments
This area focuses on the decisions made by
businesses and individuals as they choose
securities for their investment portfolios.
 Financial Management
It involves financial planning, asset management, and

The Financial
decisions to increase the value of the stakeholders.
This area is often attributed to business finance
because it deals with decisions concerning cash

Environment flows, including both inflows and outflows.

Financial Instruments and Securities

A financial instruments is any physical or electronic
document that has intrinsic monetary value or transfer value.
Securities are primarily issued by corporations to generate
cash or to acquire an asset.
 Debt security refers to corporate bonds or liability
securities
 Equity security refers to corporation shares
 A share represents an ownership interest in a corporation
can be ordinary or preference shares.
Various Financial Institutions or
Intermediaries
Supervised and regulated by the Banko Central ng Pilipinas an establishment for
deposit, custody, and issue of money , for making loans and for making the
exchange of funds easier.
BANKS • Universal and commercial banks – represent the largest single group resource wise, of
financial institutions in the Philippines. They are also authorized to engage in underwriting
and other functions of investment houses, and to invest in equities of non-allied
undertakings.
Insurance • Thrift banks – represents noncommercial banks composed of savings and mortgage banks,
Companies private development banks, stock savings banks, and loan associations and microfinance
thrift banks.
• Savings Banks – accept the saving of individuals and lend pooled savings to individuals
primarily in the form of mortgage loans.
• Rural and cooperative banks – their role is to promote and expand the rural economy in an
Lending orderly and effective manner by providing the people in the rural communities with basic
Institutions financial services. Rural banks are privately owned and managed while cooperative banks
are organized and owned by cooperatives or federations of cooperatives.
Various Financial Institutions or
Intermediaries

Insurance
Companies

Lending Similar to non-banks with quasi-banking functions, they make loans available
Institutions to individuals and businesses
Various Financial Markets
Financial Markets are physical or electronic media that facilitate the flow of funds among individuals,
businesses, and governments.

Types of financial markets and the securities that may be traded under them are…
 Money markets are the markets in which debt securities with maturities of one year or less are traded.
 Capital markets are the market in which debt instruments with maturities longer than one year and equity securities are
traded.
 Primary markets are markets in which financial instruments and securities are initially offered or sold with proceeds going
to the issuer.
 Secondary markets are markets in which previously issued instruments or securities are traded. In these markets,
proceeds go to the current seller which is not necessarily the issuing corporation.
Subtypes of Secondary Markets
 Securities markets –issued debt and equity securities are sold and traded.
 Mortgage markets –instruments or loans, backed by real property in the form of buildings and houses, are originated and
traded.
 Derivatives markets –securities are purchased and sold
 Currency exchange markets – or FOREX market where banks and institutional traders buy and sell various currencies on
behalf of businesses and other clients

FINANCE IN OTHER
AREAS
Finance also complements other functions
of business such as management,
marketing, accounting, information and
communication technology, and economics
Financial management involves planning,
organizing, controlling, and monitoring
financial resources in order to achieve
organizational objectives
Financial Management in an Organization
 Functions of a Financial Manager
--to ensure that the financial decisions are made with due regard to prudent use of
financial resources in the hope of increasing the stakeholder value
-- Corporate governance deals with the set of rules that an entity observes when conducting
business.
-- the Two managers who are reporting to the VICE PRESIDENT FOR FINANCE
The Treasurer – oversees the traditional functions of financial analysis such as capital
budgeting, short-term and long-term financing decisions, and asset management.
The Controller – manages accounting, cost analysis, and tax planning
The Financial Manager and the Organizational Goals
 A business may take any form of organization such as sole proprietorship, partnership, or
corporation.
 A business can also engage in service, merchandising, or manufacturing
 Primary Goal of one entity is to increase stakeholder value with due consideration to the
risk and timing associated with expected cash flows.
 As the head of finance, the financial manager must ensure that the financial resources
are being used to increase stakeholders value.
KEY TERMS