Financial Management Prelim Reviewer

1. What is Financial Management? 7. What are the five Financial Statements?

- a strategic planning, organizing, - Statement of Changes in Equity - Capita
directing and controlling of any financial or investment?
undertaking of an organization. Nadadagdagan ba o nababawasan?
Finance - process of raising funds and - Statement of Cash Flow - literal cash in and
capital. out of cash in the org.
- Statement of Financial Position / Balance
Management - process of dealing with or
Sheet - Assets = Liability + Capital. How many
controlling people.
assets do we have?
- Statement of Comprehensive Income
2. Why study Finance? Profit/Loss, Revenue or Loss.
- We should know how to budget, - Notes to FS - invoice or receipts
marketing, account and manage our personal or
day to day finances.  ROI - Return of Investment

3. What are the 4 basic areas of Finance? 2 Factors for the company to survive
- Corporate Finance - it concerns budgetry,  Profitable - Kumikita
raising/allocating budget to meet company needs.  Solvency - liquid, may kapasidad ba mag
Acquiring of business and maximizing the value of settle ang organization.
the company.
- Investments - Stocks and bonds/ risk vs.  What is Financial Statement Analysis?
Return - involves using financial data to assess company
- Financial Institutions - lending institutions performance and make recommendations on how
like banks or insurance company. it can improve in the future.
- International Finance - learning the politics
or customs of the place & other country before 
What are the most common types of FTS?
engaging in business. Vertical Analysis - divide income
statements by revenue and express as
4. Business Organizations percentage.
According to Nature: Services, Trading and Horizontal Analysis - spotlights trend and
Merchandising (Buy and sell), establishes relationships between items in
Manufacturing (Finish Product). comparative statement.
According to Ownership / 3 Major forms of
business org: Sole proprietorship, partnership,  Corporations are owned by shareholders
corporation. Management runs the business.

5. What are the 3 types of Management  Two period Model: No Market

Decision? - no ability to borrow or lend and had to lean on
Capital Budgeting - What long term their endowment.
investments should the business take on?
Capital Structure - how should you pay for  Intertemporal Consumption - pinapayagang
assets? mag borrow but with 10% interest.
Working Capital Management

6. Financial Manager typically make decision in

behalf of shareholders and usually the Chief
Financial Officer (CFO).
- Treasurer - oversees cash management,
credit, capital exp & planning
- Controller - oversees taxes, cost
accounting, finance acc and data processing.
ROLES AND GOALS OF FM  Control the firm
 Small business - Manage by owners BOD - can hire or fire managers
Goal: Maximize profit Replacement of management or takeovers
 Large business - owned by shareholders
that are not involved in running the NON FINANCIAL OBJECTIVES
company in day to day basis.  Employees - welfare, salary, safety
conditions
KEY DECISIONS  Customer - safe products and services
 Long Term - Investment decisions,  Government - compliance w/ legislation
Finance and Dividend decision.  Employees - pollution, public safety
 Short Term - Operations (managing cash,
inventories etc.) TIME VALUE OF MONEY
INVESTMENT DECISIONS - The time value of money means that a sum
 Internal Investment Projects - new of money is worth more now than the same
product development or innovation, and sum of money in the future.
major equipment purchases.
Future Value - amount of investment wil
 Eternal Investment Projects - Company grow in the future
merging or takeovers.
Present Value - current value of cash flows
 Disinvestments - selling unprofitable
segment of the org.

FINANCING DECISIONS
 Dept Financing - papautang, bank loan,
issue of bonds.
 Equity Financing -Bumibili ng shares,
Retained earnings - to finance future
growth.
 Mixture of both - may investment ka pero
meron karing debt.

DIVIDEND DECISIONS
- distribute based on company profits to
shareholders.
Dividend payments - to satisfy shareholders.

GOALS OF FM
 Survive
 Avoid Bankruptcy
 Maximise Profit
 Minimise cost
 Maximize Sale & Market Share
SOLUTION TO AGENCY PROBLEM
 Management compensation
Share Options - “ to financial performance
Career Prospects - Promotions, Higher
salary