PALAWAN STATE UNIVERSITY

College of Business and Accountancy

Department of Human Resource Management, Financial Management
and Economics
Puerto Princesa City

MODULE 1:
OVERVIEW OF FINANCIAL
MANAGEMENT
P4211: FINANCIAL MANAGEMENT
1st Semester | SY: 2020-2021

BSBA FM 2

Prepared by:

YVETTE J. DAQUIOAG, MPA

MARICHELLE N. BADON

JEZIEL PAOLO M. SESPEñE

 PALAWAN STATE UNIVERSITY
College of Business and Accountancy
Department of Human Resource Management, Financial Management
and Economics
Puerto Princesa City

APPROVAL SHEET

This Instructional Material entitled MODULE 1: OVERVIEW OF FINANCIAL

MANAGEMENT authored by YVETTE J. DAQUIOAG, MARICHELLE N. BADON and
JEZIEL PAOLO M. SESPEñE (FIRST SEMESTER SY 2020-2021) is recommended
for production and utilization by the students and faculty members of the College of
Business and Accountancy.

PANEL OF EVALUATORS

Local Evaluation Committee

College of Business and Accountancy -Financial Management

Reviewed by:

MARY GRACE A. MASDO, MBA

Program Coordinator

Recommending Approval:

YVETTE J. DAQUIOAG, MPA

Chairperson
Dept. of Human Resource Management,
Financial Management and Economics

Approved by:

NELLY I. MENDOZA, DBA

Dean

P4211: Financial Management | Module 1: Overview of Financial Management

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 TABLE OF CONTENTS

Title Page of Module 1

Approval Sheet 2
Table of Contents 3

Overview 4
Course Outcome 4
Learning Outcomes 4
Initial Activity 5

Content
Topic 1: Meaning and Objectives 5
Activity 1 7
Topic 2: Financial Management Goals 8
Activity 2 12
Topic 3: Functions of Financial Management 13
Activity 3 14
Topic 4: Alternative Forms of Business Organization 14
Topic 5: Financial Management vs. Accounting 16
Activity 4 17

References 18

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 MODULE 1
OVERVIEW OF FINANCIAL MANAGEMENT
Overview

Hello future financial analyst! How are you? I hope you are okay despite that we are
experiencing this covid-19 pandemic. Welcome to the new normal way of teaching and
learning wherein traditional classes are prohibited; thus, blended learning is
encouraged.

Have you experienced having money and buying wants rather than needs? In
economics, we have learned that needs are the important and necessary ones while
wants are something we desire but not necessary. Did you know that many Filipinos
do not have savings because they do not know how to control their expenses? This is
also why financial literacy is being included in the curriculum of primary education
because money is essential. So this is where financial management comes in.

In this module entitled Overview of Financial Management, we will discuss the

definition of financial management, goals, functions of financial management,
alternative forms of business organization, and the difference of accounting from
financial management.

As we go on with the discussions, expect that there will be activities to be done that
will assess your learning. You will not regret reading this module because you will
learn a lot.

Course Outcome:

1. Analyze basic concepts of financial management.

Intended Learning Outcomes:

Upon finishing this module, the learner is expected to:

1. Define financial management.
2. Compute the EPS and share in net income.
3. Identify the functions of Financial Management and forms of business
organizations.
5. Distinguish the difference of Financial Management from Accounting.

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 Initial Activity:

Before studying this module, let us check your stocked knowledge about the topics to
be covered in lesson 1.

True or False: Write the word true or false on the space provided before each
number.
_______________1. Organization and business entities can start their operation even
without money.
_______________ 2. Capital market focuses only in stocks.
_______________ 3. An effective and efficient financial management entail the
creation of a well-balanced blend of financing activities and to formulate the suitable
dividend policy that is coherent with the firm’s business objectives.
_______________ 4. Corporate Finance is the same as Financial Management.
_______________ 5. Capital market is the same as security analysis.

Now that you have assessed yourself about Financial Management

terminologies, we can proceed to the lecture proper.

Topic #1: Meaning and Objectives

The year 2020 is highly startling to the whole world due to the covid-19 pandemic.
There are economic downturns wherein businesses' sales of consumer goods become
low due to small purchases, which contributed to lower profit thus resulted in mass lay-
off of workers. Aside from this, Financial markets are being affected too, wherein
companies sell their portfolios at a lesser price. As we go on with the discussion, you
will learn how financial managers can help during this pandemic.

According to Subramanian, 2020, Finance is the organization's lifeblood because this

is where economic activities originated. Finance can be defined as the art and science
of managing money. It includes financial services and financial instruments. Finance
also is referred to as the provision of funds at the time when it is needed.

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Finance grew out of economics and accounting, and it is divided into three areas:

1. Financial Management 2. Capital Market and 3. Investments

Finance function is the procurement of funds and their effective utilization in business
concerns. It has the following concepts:

Amount
Capital
Funds
Money

Financial Management means planning, organizing, directing and controlling the

financial activities such as procurement and utilization of funds of the enterprise. It
means applying general management principles to the financial resources of the
enterprise.

Financial Management is also called as corporate finance.

1. It focuses on:
a. decisions relating to how much and what types of assets to acquire,
b. how to raise the capital needed to buy assets, and
c. how to run the firm to maximize its value.

2. Capital markets relate to markets where interest rates and stock and bond prices
are determined.
a. Financial institutions that supply the capital to businesses are studied here.
b. Government organizations such as the Federal Reserve System, which
regulates banks and controls the supply of money and the SEC, which holds
the trading of stocks and bonds in public markets, are also studied as part of
capital markets.
3. Investments relate to decisions concerning stocks and bonds. It includes several
activities.
a. Security Analysis – deals with finding the proper values of individual
securities.
b. Portfolio theory – deals with the best way to structure individual/institution
portfolios.
b.1. A properly balanced portfolio is necessary to limit risk.
c. Market Analysis – deals with whether stock and bond markets are given time
are too high, too low, or just right.

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 c.1. Behavioral Finance – examines investor psychology to determine if stock
prices have been bid up to unreasonable heights or driven down to reasonable
lows.
Objectives of Financial Management

1. To ensure a regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders, which will depend upon the
earning capacity, the share's market price, and shareholders' expectations.
3. To ensure optimum funds utilization. Once the funds are procured, they should
be utilized in the maximum possible way at least cost.
4. To ensure safety on investment, i.e, funds should be invested in safe ventures
so that an adequate rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition
of capital so that a balance is maintained between debt and equity capital.

ACTIVITY 1:
The following questions are related to Lesson 1. Put a checkmark on the circle
that corresponds to your answer.

1. The following are areas of finance EXCEPT:

o Capital Market
o Financial Management
o Investments
o Portfolio Management
2. The following are associated with the definition of Finance EXCEPT:
o Corporate Finance
o Capital structure
o The lifeblood of the organization
o Management of money
3. Which of the following pertains to the concept of Finance, which refers to financial
assets, such as funds held in deposit accounts and or funds obtained from unique
financing sources?
o Amount
o Capital
o Funds
o Money

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4. Which of the following refers to an asset or item acquired to generate income or
appreciation?
o Capital market
o Financial market
o Investment
o Portfolio
5. Which of the following does NOT belong to the group?
o Annuities
o Bonds
o Money
o Stocks

How was the short quiz? I hope all of you got the perfect score. Key to
correction was not attached to this module.

Topic #2: Financial Management Goals

You have learned in lesson 1 the definitions and objectives of Financial

Management. Here, we will be dealing with the goals of Financial Management:

Maximizing Profit Approach (Yield the highest possible profit for the firm)
One of the reasons people engage in business is that they want to earn profit and
maximize it. To achieve this, the company’s financial manager should evaluate every
decision that he should make based on the amount of income that will flow to the
company.

If there are two proposals, it is better to choose the proposal to generate the highest
profit. On the other hand, bear in mind that if the company aims for the highest yield,
the level of risk will also be higher.

One drawback of this goal is that it does not fully consider the timing when the profit or
gain would be received. Consider the table below:

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 Table 1
Company’s Share EARNINGS PER SHARE (EPS)
Year 2019 Year 2020 Total
Alton ordinary shares P 500 P 750 P 1,250
Mico ordinary shares P 750 P 500 P 1,250

Based on the table above, if the goal is to maximize profit, an investor can say that he
can invest in either of the two companies because the total is just the same. However,
Mico Corporation is the best choice. Why? Because the company benefits occurred
earlier (2019). Mico Company can reinvest the P 250 difference (P 750-P500) in 2020
compared to Alton Company, wherein the company earned the P 250 difference in
2020.
The last drawback for this goal is the accurate measuring of the vital ingredient in this
approach: profit. Why? Because the different field has different ways of calculating for
the profit as well as defining this term.

CATEGORIES OF FINANCIAL MANAGEMENT GOALS

1. Maximization of the value of the firm (Valuation Approach)
2. Maximization of Shareholder Wealth
3. Social Responsibility and Ethical Behavior

VALUATION APPROACH

The main goal of financial management is to maximize not profit alone but the
maximization of the firm's overall value.
Therefore, the financial manager should not only consider profit in investment
proposals or decisions, but he should also take into consideration the following:
1. Risk attached to the investment proposal or the company’s operation.
2. Time design as to when and how the profits will flow into the company.
3. The quality and reliability of the profits reported by the firm.

MAXIMIZATION OF SHAREHOLDER’S WEALTH

This is the expansive goal of the firm. This goal is challenging to achieve
because the market value of the firm's stock is not under the control of the financial
manager. Company's profitability and stability do mean that the market value of the
stocks is high.

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 Market value or prices are being affected by the financial environment's
economic, political, and social factors.

As time goes by, the goal of the shareholders is not on the day-to-day
movements of the stock market but more on long-term wealth, low risk, and high
dividend payments.
So there is a question on what will the financial manager do to achieve this
goal? Does it mean that maximizing profit results in maximizing the company's stock
values?
To answer this question, take a look at the example below of Alton Corporation
given that you own 1,000 shares.

Year Shares Outstanding Year-end Net Income

2018 100,000 P 500,000
2019 200,000 P 600,000

COMPUTATION AND ANALYSIS:

EPS = Net Income

Shares Outstanding

Year Percentage of Ownership Share of Net Income Earnings Per Share

(EPS)

2018 1000 shs = 0.01 x 100 = 1% 1% x P 500,000 = P 5,000 P 500,000 = P 5.00/sh

100,000 shs 100,000 shs
P 600,000 = P 3.00/sh
1000 shs = 0.05 x 100 = 0.5% 200,000 shs
2019 0.5% x P 600,000 = P 3,000
200,000 shs

Legend:
Sh/s = share/s

With this example, we can say that Alton Corporation’s profit increased by P
100,000 in 2019. The share in the net income was decreased by P 2,000. The EPS
decreased by P 2.00 per share in 2019. So with this, we can answer the question
above that:

 Profit maximization does not mean stock value maximization and;

 Considering other things constant, if the company is genuinely
concerned with the welfare of its shareholders, EPS must be given
importance rather than total company's profit.

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SOCIAL RESPONSIBILITY

From Investopedia, it means that businesses, in addition to maximizing shareholder

value, must act in a manner that benefits society. Social responsibility has become
increasingly important to investors and consumers who seek investments that are
profitable and contribute to the welfare of society and the environment. However,
critics argue that the fundamental nature of business does not consider society as a
stakeholder.

Can a company be socially responsible while focusing on maximizing the

shareholder's wealth or maximizing the firm's overall value?

Most of the time, being socially responsible, maximizing the shareholder's wealth, and
maximizing the firm's value can be reconciled. This is ideal because, in reality,
employees' salaries, benefits, anti-pollution measures, and the like are not being given
importance even when the company is achieving its goals.

The best solution is to augment the cost for this goal so that companies will be forced
to compulsory perform their corporate social responsibility.

Below are examples of companies that perform social responsibility.

Figure 1

Netflix Google

From a social perspective, companies like

Netflix and Spotify offer benefits to support
their employees and families. Netflix offers 52
weeks of paid parental leave, which can be Google is trusted for its environmentally
taken at any time, whether the first year of the friendly initiatives and due to its outspoken
child's life or another time that suits their CEO Sundar Pichai. He stands up against
needs. This compares to 18 weeks at other social issues, including President Donald
tech companies. Trump's anti-Muslim comments. Google also
earned RI's highest CSR score, much in part
due to their data center using 50% less energy
Spotify than others in the world. They also have
committed over $1 billion to renewable energy
projects and enable other businesses to
reduce their environmental impact through
services such as Gmail
offers a similar program, although for a shorter
duration of 24 weeks of paid leave.

Source: https://digitalmarketinginstitute.com/blog/corporate-16-brands-doing-corporate-social-responsibility-successfully

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 ACTIVITY 2.

PROBLEM SOLVING: Analyze and solve the problem below by showing your
detailed computation.

1. On January 25, 2018, ABC Company has 525,000 shares of outstanding stock and
earned net income of P 2,350,500.
1.1. How much is the EPS? (Round-off up to two decimal points)

2. Based on no.1 information, if there are five (5) shareholders with the following
shares of stock, how much is the share of the following stakeholders in the net
income? Round-off up to two (2) decimal points (3 points each)

2.1. Arnold – 125,800 shares

2.2. Bill –199,200 shares

2.3. Micky – 75,000 shares

2.4. Genie – 25,000 shares

2.5. Elle – 100,000 shares

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Topic #3: Functions of Financial Management

The infographic below shows the functions of Finance.

Figure 2
FUNCTIONS OF FINANCE

PROCUREMENT OF UTILIZATION OF FUNDS

FUNDS (Application of Funds)
(Sources of Funds) Objective: To maximize
Objective: To minimize returns

Long-term Short-term Short-term Long-term

sources sources investments investments

Own Loan Current Liabilities Current Assets Fixed

Funds Funds (Creditors, (Stock, Debtors,
(Equity) (Debt) Payables,etc.) Cash)
Assets

Capital Structure Working Capital Investment

Decisions/Financin Management Decisions/Capi
g Decisions tal Budgeting

Adapted from https://in.pinterest.com/pin/842806517747547918/

An effective and efficient financial management entails the creation of a well-

balanced blend of financing activities and to formulate the suitable dividend policy that
is coherent with the firm's business objectives. Financial manager must be able to
balance the income and risks on decisions to be made which is referred to as risk-
return trade-offs.

FINANCIAL MANAGER’S RESPONSIBILITIES

1. Forecasting and Planning. Financial manager must collaborate with other

managers to make strategic and operative plans in order to form the company’s
desired position.
2. Making crucial investment and financing decisions. The financial manager must
decide on where to invest the money of the company that is needed to purchase
property, plant and equipment, and the like. He should determine the sources of funds
to finance such acquisitions.

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3. Coordinating and controlling. The financial manager must coordinate with other
managers of the company, especially if it is related to finances.
4. Trading in Financial markets. It is the responsibility of the financial manager to
invest in financial markets which will give additional income to the company.
5. Risk Management. Every businesses are not free from risks. Thus, it is the
responsibility of the financial manager to design a risk management policies and
programs, get appropriate and adequate insurance for the company or hedge in the
derivatives market.

ACTIVITY 3.

MATCHING TYPE. Column A pertains to the description/term related to the

functions of financial management, and Column B is the terminology. Write the letter
of your chosen answer on the space provided before each number.
COLUMN A COLUMN B
_______ 1. Property, Plant and A. Current liability
Equipment
_______ 2. Cash B. Short-term sources
_______ 3. Working capital C. Long-term sources
management
_______ 4. Accounts Payable D. Working capital management
_______ 5. Loan Funds E. Fixed asset
_______ 6. Inventory management F. Application of Funds
_______ 7. Procurement of Funds G. Current asset
_______ 8. Utilization of Funds H. less-risky investment
_______ 9. Treasury bond I. Sources of Funds
_______ 10. Risk J. Short-term investments
K. Standard deviation

How do you find this activity? I hope you got all the correct answers!
We can now proceed to second to the last topic, which is alternative
forms of business organization.

Topic #4: Alternative Forms of Business Organization

If you are going to establish a business, what form do you like? Is it a sole
proprietorship, partnership, corporation, or hybrid? Every form has its pros and cons,
in deciding which one is better, as a finance student, you should be able to weigh the
benefits over the costs. Right? Choosing the type or form of business depends also on
the resources that you have.
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I am sure that you have tackled this topic in some of your basic business subjects, so
in this lesson, only the summary of the forms of business organization is being
presented since it is just a review of what you have learned.

Figure 3

Source:
https://www.google.com/search?q=forms+of+business+organization+venn+diagram&tbm;
Slideplayer

HYBRID FORMS OF ORGANIZATION

Generally, partnerships are known to have unlimited liability. However, there is
a limited liability partnership (LLP) wherein under this type, partnership is composed of
at least one general partner, and the rest are limited partners. The limited partners do
not have control over the company's operations. They are liable only for the amount of
their investments. It becomes a hybrid because even though the firm is a partnership,
it has the benefit of a corporation-like firm where the owners are not obliged to pay
company debts with their personal properties.

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Topic #5: Financial Management vs. Accounting

Infographic below shows the difference between Accounting and Financial

Management

Figure 4

BASIC DEFINITION WHY IS IT IMPORTANT?

ACCOUNTING FINANCIAL
ACCOUNTING FINANCIAL
MANAGEMENT
MANAGEMENT

is the management of
is the art of recording
assets and liabilities of
and reporting past
the firm to plan for It helps to decide for
transactions.
future growth. future projects and
It gives the financial manage the assets.
position of the
business.

WHO ARE THE END-USERS? KEY OBJECTIVES

ACCOUNTING FINANCIAL ACCOUNTING FINANCIAL
MANAGEMENT MANAGEMENT

Majority of the
Management,  Create wealth
management of the
stakeholders,  Generate cash
company and the
regulators, analysts,
stakeholders. Reporting financial  Earn good returns.
creditors. information.  Effective use of
assets.

TYPES AND KEY ELEMENTS

ACCOUNTING FINANCIAL
MANAGEMENT

There are no such

types but the process
It has 2 major types
involves key elements:
 Financial
 Financial planning
Accounting
 Financial control
 Management
 Financial decision
Accounting
making
Source: https://www.wallstreetmojo.com/accounting-vs-financial-management/

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I hope that you have learned a lot in this module. To have your final assessment,
kindly answer activity 4.

ACTIVITY 4.

Rubrics:
Criteria Points
5 3 1
Quality of writing Very informative and well Somewhat informative and Gives no new information and
organized. organized. very poorly organized.
Grammar, usage and Virtually no spelling, Few spelling and punctuations So many spelling, punctuation,
mechanics punctuation or errors, minor grammatical and grammatical errors that it
grammatical errors. errors. interferes with the meaning.
Originality of ideas The informations are There are informations that are All ideas are being copied from
rephrased. rephrased, but there are ideas the module.
that are being copied and
pasted.

1. Based on what you have read, differentiate accounting from financial management.
You can cite examples if that would make your explanations easier. (15 pts.)

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END OF MODULE 1

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 REFERENCES
Books:

1. Fundamentals of Financial Management (With Industry-Based Perspective) © 2010

by: MQ. Flordeliza Anastacio, PhD, CPA et.al
2. Fundamentals of Financial Management 13th Edition ©2013 by: Brigham and
Houston
3. Financial Management Part I Second Edition by: Ferdinand L. Timbang,
CPA,REB,MSCF,DBA copyright 2021

Online sites:

1. www.managementstudyguide.com/financial.
2. https://www.managementstudyguide.com/financial-management.htm
3. https://www.investopedia.com/terms/s/socialresponsibility.asp
4. https://www.wallstreetmojo.com/accounting-vs-financial-management

5.https://www.google.com/search?q=forms+of+business+organization+venn+diagram
&tbm; Slideplayer

6. https://in.pinterest.com/pin/842806517747547918/

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