Introduction to Financial

Management Pt. 1
Prepared by: Erica B. Evangelista

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 Finance in
Everyday Life
Finance
decision
FINANCE

• Finance can be defined as the

science and art of managing
money. (Gitman & Zutter, 2012)
Budgeting
Budgeting

• Budgeting is the act of estimating

revenue (in the form of their
allowance) and expenses over a
period of time (in this case, on a
daily basis).
Investments
Sources of
funds
Finance is concerned with
decisions about:

- How much of their earnings they spend

- How much they save or how much they
need
- How they invest their savings
- How they raise additional funds they need
(Gitman)
Forms of business organizations
Sole Proprietorship - A business owned by
one person and operated for his or her own
profit.
Partnership - A business owned by two or
more people and operated for profit.
Corporation – An entity created by law
owned by shareholders.
 How can you
become a
shareholders of a
corporation?
How and where
can you buy
stocks?
Privately owned
Or
Publicly owned
What do you want
to achieve as
owners of
the corporation?
 Can success be
attributed to
profitability only?
What do you think
of a company who
has very large
amount of cash.
 Wealth
maximization
 Measurement of the
shareholder’s wealth
Assume you bought 10 shares of
Globe Telecom at PHP2,510 each on
September 9, 2010. This brings his
investments to PHP25,100. What
happens to the value of his investment
if the price goes up to PHP2,600 per
share or it goes down to PHP2,300 per
share?
Factors that
Influence
Market Price
Profitability
Profit is a measure of the
financial performance of a
company for a period of time.
Good liquidity and reasonable
leverage position

Refers to the company’s

management of the type and amount of
assets and liabilities that it will hold in
the course of its operations. This will
further be discussed in Lesson 2.
Dividends
Holders of shares receive
dividends from a corporation as returns
on their investments in form of cash or
other properties. Companies which
have better dividend policies are
generally more attractive than
companies who do not pay out
dividends.
Competent management
Competent managers may have any of the
following attributes:
1) visionary
2) decisive
3) people-oriented
4) inspiring
5) innovative
6)respected
7) experienced/seasoned manager.
Corporate plans that improve
the business prospects
Example:
Company A which is in the business of
selling Halo-halo in the Dapitan area (or any
other area) for 5 years. Company A is
consistently earning profits and has a positive
cash flow. When asked how Company A sees
itself after 5 more years, Company A answered
that it would continue to sell Halo-halo in
Dapitan (or any other area).
 On the other hand, Company B sells Buko
Juice in Katipunan area (or any other area
different from Company A’s area) for 5 years.
Company B is consistently earning profits and
has a positive cash flow. When asked how
Company B sees itself after 5 more years,
Company B answered that it has generated
enough cash to expand its business to Cubao
area (or any other area) to take advantage of
the growing demand of Buko Juice in Cubao.
Between Company
A and Company B,
which would be a
better investment?
External Factors
• Its effect is not only to a specific
company but on all companies or a
group of companies under similar
circumstances.
• Such factors are a result of the
environment a company operates in
rather than the decisions of the
company’s management.
Financial management
- It deals with decisions that are
supposed to maximize the value of
shareholders’ wealth. (Cayanan)
- These decisions will ultimately affect
the markets perception of the company
and influence the share price.
- The goal of financial management is to
maximize the value of shares of stocks.
Managers
Managers of a corporation are
responsible for making the
decisions for the company that
would lead towards shareholders’
wealth maximization.
Assignment: (1 whole)
Identify the roles and functions of the
following:
 Key terms

• Short-term investments
• Long-term investments
• Capital structure
• Working capital
• Liquidity risk