Financial Management

Daily 10:00 – 12:00

Summer 2019
By: Pearl Rhelmae F. Arevalo, CPA, MBE, CB
What is Business

Business is an entity in which the
skills, energy and enterprise of
owners and partners are linked with
money, its sources and investment,
and its success is measured by
wealth, or profit the business gets.
Elements for successful business
finance function:
First,the business entity must obtain money
from the right sources and invest it in the right
places;
Second, it must continue to attain its purpose of
gaining profit;
Third, cash must be available when it is
needed, and its availability can be crucial in
some decision-making situations.
Sources of capital for corps.

shared capital – those invested

by stockholders; and
Sources of capital for corps.
loan capital those provided by creditors
or lenders. It is also possible that owners
might bring into the business, as their
capital, things that they own like office
equipment, machinery and motor
vehicles.
Where can money be used or
invested
first,in the things that are not
intended to be sold – the fixed
assets, or sometime referred to
as capital expenditure;
Where can money be used or
invested
and second, in things specifically
intended to go into what is to be
sold as revenue expenditure,
which as an investment area is
known as working capital.
Third, the investments on outside areas of
the business. It must be noted that there
are no natural barriers between them.
Amounts invested in one can be taken out
of that area and transferred to another,
and vice versa. This emphasizes the rule
that wise business investments consider its
liquidity.
What is Finance

Finance studies money and

its management. Similar to
economics, it explores the
allocation of resources.
What is Finance
Finance is also a body of
facts, principles and theories
relating to raising and using
money by individuals,
businesses and governments.
Finance as a discipline

Has three areas which include the financial

institutions, investments and business finance:
1. Study of financial institutions is concerned with the
creation of financial assets, the markets for trading
securities, and the regulations of financial markets.
Financial assets originate from investment bankers and
financial intermediaries, including commercial banks,
savings and loan associations, and life insurance
companies.
2. Study of investments is concerned
with the analysis of individual asset
and the planning for well-diversified
portfolios. It includes *financial
planning, identifying financial goals,
assessment of available securities, and
constructing diversified portfolios.
*What is Financial Planning
is the process of estimating the
capital required and determining
it’s competition. It is the process
of framing financial policies in
relation to procurement,
investment and administration of
funds of an enterprise.
3. Corporate or business finance
studies the role of financial manager,
his ability to meet obligations as they
come due, identifying the best sources
of funds, allocating resources among
available investment alternatives.
Major financial decisions for the
business.
Financing decisions involve generating funds
internally or from external sources. Funds
may be generated externally from borrowing
and by issuing debt or equity securities. It
also involves dividend decisions, because the
payment of dividend reduces the internally-
generated funds that are available.
Major financial decisions for the
business.
Investment decisions determine the real assets that a
business has. These assets generate the cash flows that
are needed to meet operating expenses, pay interest to
creditors, taxes to government and dividends to
stockholders. Managers must also ensure that investments
in current assets – including cash, inventories and
accounts receivables, are at appropriate levels
throughout the year, such that the business has sufficient
cash to enable payment of its obligations as they become
due.
 What is Financial Management
This is also referred to as managerial
finance, corporate finance and business
finance.
Financial Management is a decision making
process concerned with planning, acquiring
and utilizing funds in a manner that
achieves the firm’s desired goals.
What is the goal of a Financial
Manager
To maximize the current
value per share of the
existing stock or ownership
in a business firm.
Three decisions made by Financial Managers:

Capital budgeting. This concerns the

planning and managing of the firm’s
long-term investments. The financial
manager tries to identify investment
opportunities that are worth more to
the firm than the cost to acquire.
Capital structuring. This
evaluates ways in which the firm
obtains and manages the long-
term financing it needs to support
its long-term investments.
The firm’s capital structure or financial
structure is the specific mixture of long-term
debt and equity the firm uses to finance its
operations. Financial manager concerns are:
how much should the firm borrow? And what
combination of debt and equity is best? It
determines what part of the pie, or the firm’s
cash flow goes to creditors and what part goes
to shareholders.
Also, the officer should decide exactly how and
where to raise the money. The expenses
associated with raising long-term financing can
be considerable, so different possibilities must
be carefully evaluated. Corporations borrow
money from variety of lenders in number of
different ways, thus choosing among available
creditors and loan types is another significant
factor in financial decisions.
Working capital management.
This refers to administration of
the firm’s short-term assets,
including inventory, its short-
term liabilities – such as money
owed to suppliers.
Managing the firm’s working
capital is a day-to-day activity
that ensures that the company
has sufficient resources to
continue its operations.
Questions and issues are: how much
cash and inventory should be kept
on hand; should firm sell on credit –
what terms; should firm buy on
credit, or borrow on short term and
pay cash.
Top ten major roles of Financial
Managers are:

Managing investment in non-

current assets through
evaluation of capital projects.
Top ten major roles of Financial
Managers are:

Evaluating, obtaining and

servicing long-term financial
requirements through
borrowing, leasing, retaining
funds or issuing stocks and
securities.
Top ten major roles of Financial
Managers are:

Distributionof dividends to
shareholders.
Top ten major roles of Financial
Managers are:

Collection
and custody of cash
and payment of bills.
Top ten major roles of Financial
Managers are:

Managing investment in current

assets such as cash, marketable
securities and inventory.
Top ten major roles of Financial
Managers are:

Obtaining and servicing short-

term finance.
Top ten major roles of Financial
Managers are:

Managing risks associated with

changes in interest rates and
exchange rates.
Top ten major roles of Financial
Managers are:

Assessing the viability of

growth through acquisition of
other businesses.
Top ten major roles of Financial
Managers are:

Planningthe future
development of the business.
Top ten major roles of Financial
Managers are:

Development and
implementation of financial
policies