CHAPTER 1

NATURE, PURPOSE AND SCOPE OF

FINANCIAL MANAGEMENT
NATURE OF FINANCIAL MANAGEMENT

FINANCE MANAGEMENT

study and system of money,

the coordination and administration
investments, and other financial
of tasks to achieve a goal
instruments
NATURE OF FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT
Ø or Managerial Finance, Corporate Finance, Business
Finance

Ø decision making process concerned with planning,

acquiring, and utilizing funds in a manner that
achieves the firm’s desired goals
 THE GOAL OF FINANCIAL MANAGEMENT

Ø to maximize the current value per share of the existing

stock or ownership in a business firm

Ø financial managers make decision for the owners of the

firm
 COVENANT FOR SHARED PROSPERITY

Ø Philippine Business Groups (PBGs) signed a Covenant for

Shared Prosperity on November 05, 2020

Ø Signatories shall issue policy statement that embody the

commitments of these member-companies to their
respective stakeholders:
1. Employees;
2. Customers;
3. Suppliers;
4. Community;
5. Environment; and
6. Shareholders
 SCOPE OF FINANCIAL MANAGEMENT

Ø TRADITIONAL VIEW:
ü Procurement of short-term as well as long-term funds
from financial institutions
ü Mobilization of funds through financial instruments such
as equity shares, preference shares, debentures, bonds,
notes, and so forth
ü Compliance with legal and regulatory provisions relating
to funds procurement, utilization, and distribution as well
as coordination of finance function and accounting
function
 SCOPE OF FINANCIAL MANAGEMENT

Ø MODERN VIEW:
ü Judicious and efficient use of funds in line with the
objectives of the firms and expectations of the providers
of funds
ü Consideration of globalization and liberalization of world
economy
 TYPES OF FINANCIAL DECISIONS

INVESTMENT FINANCING DIVIDEND

determination of quantum of
determines how scarce or asserts that mix of debt and
profits to be distributed to
limited resources in terms equity chosen to finance
the owners, the frequency
of funds of the business investments should
of such payments and the
firms are committed to maximize the value of
amounts to be retained by
projects investments made
the firm
 SIGNIFICANCE OF FINANCIAL MANAGEMENT

1. BROAD APPLICABILITY

2. REDUCTION OF CHANCES OF FAILURE

3. MEASUREMENT OF RETURN ON INVESTMENT

 RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT,
ACCOUNTING, AND ECONOMICS

FINANCIAL
ACCOUNTING ECONOMICS
MANAGEMENT

systematic recording of
transactions relating to the
process for and the a social science that studies
firm’s activities in the books
analysis of making financial the production, distribution,
of accounts and
decisions in the business and consumption of goods
summarizing the same for
context and services
presentation in the financial
statements
CHAPTER 1

NATURE, Review Questions:

PURPOSE AND 1. Elaborate: “The goal of financial management

SCOPE OF is to maximize the current value per share of the
FINANCIAL exisiting stock or ownership in a business firm”.
MANAGEMENT
2. In trying to achieve optimum profits, what may
a firm ignore?

3. Provide an example of business transaction

that would be relevant for each type of financial
management decision.

FIN101
NEIL EDSON OSILA, CPA