COLLEGE OF MARY IMMACULATE

JP Rizal St., Poblacion, Pandi, Bulacan

(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

I. INTRODUCTION TO FINANCIAL MANAGEMENT

Financial Management

Financial management refers to the efficient and effective management of money

(funds) in such a manner as to accomplish the objectives of the organization. It is the
specialized function directly associated with the top management. It has been defined
differently by different experts in the field.

It includes how to raise the capital, how to allocate it, i.e., capital budgeting. Not only
about long-term budgeting but also how to allocate the short-term resources like
current assets. It also deals with the dividend policies of the shareholders.

CORPORATE FINANCE AND THE FINANCIAL MANAGER

Corporate finance is the area of finance dealing with the sources of funding and the
capital structure of corporations and the actions that managers take to increase the
value of the firm to the shareholders, as well as the tools and analysis used to allocate
financial resources. The primary goal of corporate finance is to maximize or increase
shareholder value. Although it is in principle different from managerial finance which
studies the financial management of all firms, rather than corporations alone, the
main concepts in the study of corporate finance are applicable to the financial
problems of all kinds of firms.

Investment analysis (or capital budgeting) is concerned with the setting of criteria
about which value-adding projects should receive investment funding, and whether
to finance that investment with equity or debt capital. Working capital management
is the management of the company's monetary funds that deal with the short-term
operating balance of current assets and current liabilities; the focus here is on
managing cash, inventories, and short-term borrowing and lending (such as the terms
on credit extended to customers).

The Role of the Financial Manager

➢ Capital Budgeting Decision

Decision to invest in tangible or intangible assets.

➢ …also called the Investment Decision

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For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
 COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

➢ Financing Decision
The form and amount of financing of a firm’s investments

➢ Capital Structure
The mix of long-term debt and equity financing

➢ Real Assets
Assets used to produce goods and services.

➢ Financial Assets
Financial claims to the income generated by the firm’s real assets.

What is a Corporation?

➢ Corporation
A business organized as a separate legal entity owned by stockholders.

Within the context of Philippine law, a "corporation" is treated as an artificial

being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its
existence [Sec. 2, Corporation Code].

COLLEGE OF MARY IMMACULATE © 2021. All Rights Reserved.

For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
 COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

➢ Types of Corporations
Corporations may be classified as follows:
[a] Stock corporations - [1] capital stock divided into shares; and [2] authorized
to distribute profits
[b] Non-stock corporations - organized not for profit

Corporation, kinds by method of creation:

[a] by special law or charter
[b] by being organized under the corporation code

Organizing a Business

➢ Types of Business Organizations

1. Sole Proprietorships
2. Partnerships
3. Corporations
4. Limited Liability Options
• Limited Liability Partnerships
• Limited Liability Corporations
• Professional Corporations

Sole
Proprietorship Partnership Corporation

Who owns the

The manager Partners Stockholders
business?

Are managers and

No No Usually
owners separate?

What is the owner's

Unlimited Unlimited Limited
liability?

Are the owner and

business taxed No No Yes
separately?

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Limited Liability
Corporations Corporate tax on profits +
Personal tax on dividends

COLLEGE OF MARY IMMACULATE © 2021. All Rights Reserved.

For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
 COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

Who is the Financial Manager?

Chief Financial Officer

Treasurer Controller

➢ Chief Financial Officer (CFO)

Oversees the treasurer and controller and sets overall financial strategy.

➢ Treasurer
Responsible for financing, cash management, and relationships with banks and
other financial institutions

➢ Controller
Responsible for budgeting, accounting, and taxes.

Goals of the Corporation

➢ Shareholders desire wealth maximization

➢ Do managers maximize shareholder wealth?
➢ Managers have many constituencies, i.e. “stakeholders”
➢ “Agency Problems” represent the conflict of interest between management and
owners

Agency Problem

➢ Ownership vs. Management

Difference in Information Different Objectives
 Stock prices and returns  Managers vs.
 Issues of shares and stockholders
other securities  Top mgmt vs.
 Dividends operating mgmt
 Financing  Stockholders vs. banks
and lenders

COLLEGE OF MARY IMMACULATE © 2021. All Rights Reserved.

For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.
 COLLEGE OF MARY IMMACULATE
JP Rizal St., Poblacion, Pandi, Bulacan
(044) 769.2021
https://www.collegeofmaryimmaculate.edu.ph

➢ Managers, acting as agents for stockholders, may act in their own interests
rather than maximizing value.

➢ Stakeholder – Anyone with a financial interest in the firm

Agency Problem Solutions

1. Compensation plans
2. Board of Directors
3. Takeovers
4. Specialist Monitoring
5. Legal and Regulatory Requirements

REFERENCES:

Fundamentals of Corporate Finance 6th Edition, Richard A. Brealey/Stewart C. Myers/Alan

J. Marcus, 2009
www.wikipedia.org

COLLEGE OF MARY IMMACULATE © 2021. All Rights Reserved.

For the exclusive use of Officially Enrolled CMIans only. Unauthorized use, reproduction,
sharing or distribution is strictly prohibited.