Christine Joy M.

Digno - BSA3

Review Questions

1. What is the purpose of financial management? Describe the kinds of activities that financial
management deals with.

The primary objectives of financial management are securing sufficient obtainability of funds. seeking to
reduce the cost of finance, dealing with the planning and acquisition of funds, attempting to effectively
utilize and allocate the funds received, improving the overall value of the firms and providing economic
stability.

The kinds of activities that financial management deals with are planning, controlling, organizing and
directing, and decision making.

2. What is the difference in perspective between finance and accounting?

The difference between finance and accounting is that accounting deals with the day-to-day flow of
money that comes in and out of a firm or institution, while finance is a broader term for the
management of assets and liabilities and the planning of future growth. The main employers of
accounting are the public accounting firms and corporations whereas banks and corporations are the
main employers under finance. Furthermore, it also differs in the aspect of business purposes as the
accounting focuses on communicating the financial position while finance deals with figuring out how to
add value.

3. Explain the shareholder wealth maximization goal of the firm and how it can be measured. Make an
argument for why it is a better goal than maximizing profit.

The shareholder wealth maximization goal is defined as the seeking to maximize the present value of
the expected future returns to the owners or shareholders of the firm. The returns that will be receiving
from this can take the form of periodic dividend payments or proceeds from the sale of the common
stock. The shareholder wealth maximization goal of the firm is a better goal because it is a long term
goal achieved by many short-term decisions to sustain or even exceed the expected value of
shareholders. Thus, managers with desire to maximize value for shareholder need to appraise both
short-term and long-term outcome on their decisions so as to increase the market stock price.

4. Name and describe as many corporate stakeholders as you can.

Under SFA Semicon, which is a company located in the Philippines which specializes in packaging &
testing of semiconductors, SFA Semicon Co., Ltd. has the highest holdings of 1,840,264,104 which
appears to be 85% of all the total holdings among all the stakeholders. BDO Securities Corporation on
the other hand placed as the second highest stockholder with 56,673,000 holdings. This corporation was
incorporated in the Philippines to engage primarily in the stock brokerage business and to deal in
securities and all activities directly connected therewith or incidental thereto. COL Financial Group, Inc.
which is an Investment Program that gives investors a simple and more convenient way of investing in
the stock market regardless of age, income or experience using cost averaging, ranked as third with
51,827,421 holdings RCBC Securities, Inc. which operates as a brokerage firm that provides buying and
selling of shares of publicly listed companies holds a total of 46,587,500 stocks which made them placed
as the fourth highest stakeholders of SFA Semicon. BPI Securities Corporation which is a fully- integrated
online trading platform of BPI Securities, enables clients to post online orders to the Philippine Stock
Exchange, offers real-time stock market quotes and comprehensive research. They have a total of
15,104,922 holdings which is why they are ranked as the fifth highest stakeholder.

5. What conflicts of interest can arise between managers and stockholders?

Managers and stockholder may have interests in a corporation that conflict. Agency costs which refers
to instances when an agent's behavior has deviated from a principal's interest usually arises due to
contracting costs, or because individual managers might only possess partial control of corporation
behavior. They also arise when managers have personal objectives that varies from the goal of
maximizing shareholder profit.

6. What are the three types of financial management decisions? For each type of decision, give an
example of a business transaction that would be relevant.

The three types of financial management decisions are investment, financing and dividend decisions.
Investment decision refers to a financial decisions taken by the firm to invest funds with the goal of
earning the highest possible returns for the investors. An example of this is when entity buy machinery
for production. On the other hand, financing decisions is defined as a process which deals with all the
decisions related with liabilities and stockholder's equity of the company as well as the issuance of
bonds. An example of this is securing a bank loan or the selling debt in the public capital markets. Lastly,
dividend decisions are decisions that is concerned with the quantum of profits to be distributed among
shareholders. The issuance or declaration of dividends is an example of this.

7. What goal should always motivate the action of a firm's financial manager?

The main goal that always motivates the actions of a financial manager is the continuous financial health
of the firm. The board of directors is in charge of setting direction and performance goals for the CEO to
execute. The CEO is in charge of creating strategies and tactics to meet the goals set by the board. The
financial manager is in charge of making sure the company has enough capital, and sources of capital, to
accomplish these goals.

8. What do financial managers try to maximize, and what is their second objective?

The goal of financial management is to maximize shareholder wealth. For public companies this is the
stock price, and for private companies this is the market value of the owners' equity. And their second
objective is Proper Mobilization. Effective mobilization is one of the most important objectives of
financial function. It means that managers need to make decisions regarding the allocation and
utilization of various funds.

9. In trying to achieve optimum profits, what may a firm, ignore?

Time value of money is ignored: The formula is based on the idea that the higher the profit, the better
the proposal, but what about its timing? In finance, when considering present value, we know that cash
now won't have the same value in the future.

10. State the kinds of assurances that investors and creditors seek from a firm.
These are entirely different functions. Creditors want collateral in case things go wrong, land, buildings,
equipment and inventory. In a private company investors are very similar to creditors but with more say
about the direction of the company.

For a public company investors want a game plan for profitability, growing, continuing, achieving etc.
They want their investment to grow in value. Or to spin off dividends. They don’t get a call on the
company until after the creditors get paid.

11. What environmental considerations prevent the firm from achieving the best results in terms of cost
control and profitability? Explain what this means.

Environmental cost management enables your business to control the costs associated with the
environmental impact of your company's business operations. Your company may impact the
environment in a number of ways, including air pollution, manufacturing emissions, wet land impact and
waste disposal.

12. What are some of the micro- and macro-economics factors that influence the decisions of a firm?

Microeconomic factors such as supply and demand, taxes and regulations, and macroeconomic factors
such as gross domestic product (GDP) growth, inflation, and interest rates, have a significant influence
on different sectors of the economy and hence on your investment portfolio.

13. What three accounting statements help the manager monitor a firm's performance? What can the
balance sheet tell the firm about its assets and financial structure?

The income statement, balance sheet, and statement of cash flows are required financial statements.
These three statements are informative tools that traders can use to analyze a company's financial
strength and provide a quick picture of a company's financial health and underlying value.

14. What are some of the nonfinancial aspects of the manager's role in society such as responsibility
toward workers, treatment of monitories, and dealing with gender problems?

Social responsibility refers to an individual or corporate accountability to fulfill their civic duty and take
actions that will benefit society. Socially responsible company managers make decisions that maximize
profits and protect the interests of the community and society as a whole.

15. Besides maximizing the wealth of the firm, what are some of the other goals of financial
management?

Financial management has multiple objectives, depending on the context. It could be to acquire
adequate funding for an innovation, or to ensure adequate cash flow to keep an entity running
efficiently or to prepare for potential bad events; among many other possible objectives.