SPECIFIC LEARNING OUTCOMES

ABM
BUSINESS FINANCE THE LEARNERS WILL BE ABLE TO:
• UNDERSTAND THE KEY POSITIONS

INTRODUCTION TO IN A CORPORATE ORGANIZATION

AND IDENTIFY THE ROLES OF EACH.

FINANCIAL • IDENTIFY
ACTIVITIES OF
THE
THE
PRIMARY
FINANCIAL

MANAGEMENT MANAGER.

CONTENT STANDARDS THE PERFORMANCE STANDARDS LEARNING COMPETENCY THE

LEARNERS DEMONSTRATE AN LEARNERS
THE LEARNERS WILL BE ABLE TO:
UNDERSTANDING OF THE • EXPLAIN THE MAJOR ROLE OF
• DESCRIBE WHO ARE RESPONSIBLE
DEFINITION OF FINANCE, THE FINANCIAL MANAGEMENT AND THE
FOR FINANCIAL MANAGEMENT
DIFFERENT INDIVIDUALS INVOLVED.
ACTIVITIES OF THE FINANCIAL WITHIN AN ORGANIZATION.
(ABM_BF12-IIIA-1)
MANAGER, AND THE • DESCRIBE THE PRIMARY
• EXPLAIN THE FLOW OF FUNDS
FINANCIAL INSTITUTIONS AND ACTIVITIES OF THE FINANCIAL
WITHIN AN ORGANIZATION –
MARKETS. MANAGER. THROUGH AND FROM THE
• DESCRIBE HOW THE FINANCIAL ENTERPRISE—AND THE ROLE OF THE
MANAGER HELPS IN ACHIEVING THE FINANCIAL MANAGER. (ABM_BF12-
GOAL OF THE ORGANIZATION. IIIA-5) MELVIN J. REYES
 THE CORPORATE
ORGANIZATION STRUCTURE
ROLES OF EACH POSITION
• SHAREHOLDERS: THE SHAREHOLDERS ELECT THE BOARD OF DIRECTORS (BOD). EACH SHARE HELD IS
EQUAL TO ONE VOTING RIGHT. SINCE THE BOD IS ELECTED BY THE SHAREHOLDERS, THEIR
RESPONSIBILITY IS TO CARRY OUT THE OBJECTIVES OF THE SHAREHOLDERS OTHERWISE, THEY WOULD
NOT HAVE BEEN ELECTED IN THAT POSITION. ASK THE LEARNERS AGAIN WHAT THE OBJECTIVE OF THE
SHAREHOLDERS IS JUST TO REFRESH.
• BOARD OF DIRECTORS: THE BOARD OF DIRECTORS IS THE HIGHEST POLICY MAKING BODY IN A
CORPORATION. THE BOARD’S PRIMARY RESPONSIBILITY IS TO ENSURE THAT THE CORPORATION IS
OPERATING TO SERVE THE BEST INTEREST OF THE STOCKHOLDERS. THE FOLLOWING ARE AMONG THE
RESPONSIBILITIES OF THE BOARD OF DIRECTORS: - SETTING POLICIES ON INVESTMENTS, CAPITAL
STRUCTURE AND DIVIDEND POLICIES. - APPROVING COMPANY’S STRATEGIES, GOALS AND BUDGETS. -
APPOINTING AND REMOVING MEMBERS OF THE TOP MANAGEMENT INCLUDING THE PRESIDENT. -
DETERMINING TOP MANAGEMENT’S COMPENSATION. - APPROVING THE INFORMATION AND OTHER
DISCLOSURES REPORTED IN THE FINANCIAL STATEMENTS (CAYANAN, 2015)
ROLES OF EACH POSITION
• PRESIDENT (CHIEF EXECUTIVE OFFICER): THE ROLES OF A PRESIDENT IN A CORPORATION MAY VARY FROM
ONE COMPANY TO ANOTHER. AMONG THE RESPONSIBILITIES OF A PRESIDENT ARE THE FOLLOWING: -
OVERSEEING THE OPERATIONS OF A COMPANY AND ENSURING THAT THE STRATEGIES AS APPROVED BY THE
BOARD ARE IMPLEMENTED AS PLANNED. - PERFORMING ALL AREAS OF MANAGEMENT: PLANNING,
ORGANIZING, STAFFING, DIRECTING AND CONTROLLING. - REPRESENTING THE COMPANY IN PROFESSIONAL,
SOCIAL, AND CIVIC ACTIVITIES.
• VP FOR MARKETING: THE FOLLOWING ARE AMONG THE RESPONSIBILITIES OF VP FOR MARKETING

- FORMULATING MARKETING STRATEGIES AND PLANS.

- DIRECTING AND COORDINATING COMPANY SALES.
- PERFORMING MARKET AND COMPETITOR ANALYSIS.
- ANALYZING AND EVALUATING THE EFFECTIVENESS AND COST OF MARKETING METHODS APPLIED.
- CONDUCTING OR DIRECTING RESEARCH THAT WILL ALLOW THE COMPANY IDENTIFY NEW MARKETING
OPPORTUNITIES, E.G. VARIANTS OF THE EXISTING PRODUCTS/SERVICES ALREADY OFFERED IN THE MARKET.
- - PROMOTING GOOD RELATIONSHIPS WITH CUSTOMERS AND DISTRIBUTORS. (CAYANAN, 2015)
 ROLES OF EACH POSITION
• VP FOR PRODUCTION: THE FOLLOWING ARE AMONG THE RESPONSIBILITIES OF VP FOR PRODUCTION:
- ENSURING PRODUCTION MEETS CUSTOMER DEMANDS.
- IDENTIFYING PRODUCTION TECHNOLOGY/PROCESS THAT MINIMIZES PRODUCTION COST AND MAKE THE
COMPANY COST COMPETITIVE.
- - COMING UP WITH A PRODUCTION PLAN THAT MAXIMIZES THE UTILIZATION OF THE COMPANY’S PRODUCTION
FACILITIES.
- - IDENTIFYING ADEQUATE AND CHEAP RAW MATERIAL SUPPLIERS. (CAYANAN, 2015)
• VP FOR ADMINISTRATION: THE FOLLOWING ARE AMONG THE RESPONSIBILITIES OF VP FOR ADMINISTRATION:
- COORDINATING THE FUNCTIONS OF ADMINISTRATION, FINANCE, AND MARKETING DEPARTMENTS.
- ASSISTING OTHER DEPARTMENTS IN HIRING EMPLOYEES.
- PROVIDING ASSISTANCE IN PAYROLL PREPARATION, PAYMENT OF VENDORS, AND COLLECTION OF
RECEIVABLES.
- DETERMINING THE LOCATION AND THE MAXIMUM AMOUNT OF OFFICE SPACE NEEDED BY THE
COMPANY.IDENTIFYING MEANS, PROCESSES, OR SYSTEMS THAT WILL MINIMIZE THE OPERATING COSTS OF THE
COMPANY. (CAYANAN, 2015)
 QUOTES FROM THE CHIEF
FINANCIAL OFFICERS (CFOS)
• UNILEVER: “FINANCE PLAYS A CRITICAL ROLE ACROSS EVERY ASPECT OF OUR BUSINESS.
WE ENABLE THE BUSINESS TO TURN OUR AMBITION AND STRATEGY INTO SUSTAINABLE,
CONSISTENT AND SUPERIOR PERFORMANCE” - JEAN-MARC HUËT (UNILEVER)
• JOLLIBEE: “IT’S VERY EXCITING BECAUSE YOU ARE NOT JUST THINKING OF TODAY BUT
WHAT THE COMPANY WILL NEED IN THE FUTURE” - YSMAEL V. BAYSA (MORALES, 2013)
• GLOBE TELECOM: “YESTERDAY’S SOLUTIONS ARE NEVER ADEQUATE FOR THE FUTURE” -
ALBERT DE LARRAZABAL (KLOBUCHER, 2015)
• SM CORPORATION: “NOW, WE DON’T GO OUT BECAUSE WE NEED FUNDS. WE GO OUT
BECAUSE IT’S AN OPPORTUNITY.” – JOSE T. SIO (MONTEALEGRE, 2015)
 FUNCTIONS OF A
FINANCIAL MANAGER
IDENTIFY THE FOUR FUNCTIONS OF A VP FOR FINANCE (CFO) AS FOLLOWS:
- FINANCING - INVESTING - OPERATING - DIVIDEND POLICIES
FINANCING DECISIONS INCLUDE MAKING DECISIONS ON HOW TO FUND LONG TERM
INVESTMENTS (SUCH AS COMPANY EXPANSIONS) AND WORKING CAPITAL WHICH DEALS
WITH THE DAY TO DAY OPERATIONS OF THE COMPANY (I.E., PURCHASE OF INVENTORY,
PAYMENT OF OPERATING EXPENSES, ETC.).
THE ROLE OF THE VP FOR FINANCE OF THE FINANCIAL MANAGER IS TO DETERMINE THE
APPROPRIATE CAPITAL STRUCTURE OF THE COMPANY. CAPITAL STRUCTURE REFERS TO
HOW MUCH OF YOUR TOTAL ASSETS IS FINANCED BY DEBT AND HOW MUCH IS FINANCED
BY EQUITY.
 FUNCTIONS OF A
FINANCIAL MANAGER
 FUNCTIONS OF A
FINANCIAL MANAGER
• TO BE ABLE TO ACQUIRE ASSETS, OUR FUNDS MUST HAVE COME SOMEWHERE. IF IT WAS
BOUGHT USING CASH FROM OUR POCKETS, IT IS FINANCED BY EQUITY.
• ON THE OTHER HAND, IF WE USED MONEY FROM OUR BORROWINGS, THE ASSET BOUGHT
IS FINANCED BY DEBT.
• IN THE FIGURE, THE TOTAL ASSETS IS FINANCED BY 60% DEBT AND 40% EQUITY.
ACCORDINGLY, THE CAPITAL STRUCTURE IS 60% DEBT AND 40% EQUITY.
DO YOU THINK THERE IS AN IDEAL MIX OF DEBT AND EQUITY ACROSS CORPORATIONS?
 FUNCTIONS OF A
FINANCIAL MANAGER
INVESTMENTS MAY EITHER BE SHORT TERM OR LONG TERM.
- SHORT TERM INVESTMENT DECISIONS ARE NEEDED WHEN THE COMPANY IS IN AN
EXCESS CASH POSITION.
• TO PLAN FOR THIS, THE FINANCIAL MANAGER SHOULD BE ABLE TO MAKE USE OF
FINANCIAL PLANNING TOOLS SUCH AS BUDGETING AND FORECASTING WHICH WILL BE
DISCUSSED IN LESSON 3: FINANCIAL PLANNING TOOLS AND CONCEPTS.
• MOREOVER, THE COMPANY SHOULD CHOOSE WHICH TYPE OF INVESTMENT IT SHOULD
INVEST IN THAT WOULD PROVIDE AN MOST OPTIMAL RISK AND RETURN TRADE OFF. WE
WILL LEARN MORE ABOUT THIS ON LESSON 6: INTRODUCTION TO INVESTMENTS.
 FUNCTIONS OF A
FINANCIAL MANAGER
INVESTMENTS MAY EITHER BE SHORT TERM OR LONG TERM.
- LONG TERM INVESTMENTS SHOULD BE SUPPORTED BY A CAPITAL BUDGETING
ANALYSIS WHICH IS AMONG THE RESPONSIBILITIES OF A FINANCE MANAGER.
CAPITAL BUDGETING ANALYSIS IS A TOOL TO ASSESS WHETHER THE INVESTMENT WILL
BE PROFITABLE IN THE LONG RUN AND WILL BE FURTHER DISCUSSED IN LESSON 5: BASIC
LONG TERM FINANCIAL CONCEPTS. THIS IS A CRUCIAL FUNCTION OF MANAGEMENT
ESPECIALLY IF THIS INVESTMENT WOULD BE FINANCED BY DEBT.
THE LENDERS SHOULD HAVE THE CONFIDENCE THAT THE INVESTMENTS THAT
MANAGEMENT WILL PUSH THROUGH WITH WILL BE PROFITABLE OR ELSE THEY WOULD
NOT LEND THE COMPANY ANY MONEY.
 FUNCTIONS OF A
FINANCIAL MANAGER
OPERATING DECISIONS DEAL WITH THE DAILY OPERATIONS OF THE
COMPANY. THE ROLE OF THE VP FOR FINANCE IS DETERMINING HOW
TO FINANCE WORKING CAPITAL ACCOUNTS SUCH AS ACCOUNTS
RECEIVABLE AND INVENTORIES. THE COMPANY HAS A CHOICE ON
WHETHER TO FINANCE WORKING CAPITAL NEEDS BY LONG TERM OR
SHORT TERM SOURCES. WHY DOES A FINANCIAL MANAGER NEED TO
CHOOSE WHICH SOURCE OF FINANCING A COMPANY SHOULD USE?
WHAT DO THEY NEED TO CONSIDER IN MAKING THIS DECISION?
 FUNCTIONS OF A
FINANCIAL MANAGER
- SHORT TERM SOURCES ARE THOSE THAT WILL BE PAYABLE IN AT MOST 12 MONTHS. THIS INCLUDES SHORT-TERM
LOANS WITH BANKS AND SUPPLIERS’ CREDIT. FOR SHORT-TERM BANK LOANS, THE INTEREST RATE IS GENERALLY
LOWER AS COMPARED TO THAT OF LONG-TERM LOANS. HENCE, THIS WOULD LEAD TO A LOWER FINANCING COST.
- SUPPLIERS’ CREDIT ARE THE AMOUNTS OWED TO SUPPLIERS FOR THE INVENTORIES THEY DELIVERED OR
SERVICES THEY PROVIDED. WHILE SUPPLIERS’ CREDIT IS GENERALLY FREE OF INTEREST CHARGES, THE
OBLIGATIONS WITH THEM HAVE TO BE PAID ON TIME TO MAINTAIN GOOD SUPPLIER RELATIONSHIP. SUCH
RELATIONSHIPS SHOULD BE NURTURED TO ENSURE TIMELY DELIVERY OF INVENTORIES.
- SHORT TERM SOURCES POSE A TRADE-OFF BETWEEN PROFITABILITY AND LIQUIDITY RISK. BECAUSE THIS
SOURCE MATURES IN A SHORT PERIOD, THERE IS A POSSIBILITY THAT THE COMPANY MAY NOT BE ABLE TO
OBTAIN ENOUGH CASH TO PAY THEIR OBLIGATION (I.E. LIQUIDITY RISK).
- LONG TERM SOURCES, ON THE OTHER HAND, MATURE IN LONGER PERIODS. SINCE THIS WILL BE PAID MUCH
LATER, THE LENDERS EXPECT MORE RISK AND PLACE A HIGHER INTEREST RATE WHICH MAKES THE COST OF
LONG TERM SOURCES HIGHER THAN SHORT TERM SOURCES. HOWEVER, SINCE LONG TERM SOURCES HAVE A
LONGER TIME TO MATURE, IT GIVES THE COMPANY MORE TIME TO ACCUMULATE CASH TO PAY OFF THE
OBLIGATION IN THE FUTURE.
- HENCE, THE CHOICE BETWEEN SHORT AND LONG TERM SOURCES DEPENDS ON THE RISK AND RETURN TRADE
 FUNCTIONS OF A
FINANCIAL MANAGER
DIVIDEND POLICIES. RECALL THAT CASH DIVIDENDS ARE PAID BY
CORPORATIONS TO EXISTING SHAREHOLDERS BASED ON THEIR SHAREHOLDINGS
IN THE COMPANY AS A RETURN ON THEIR INVESTMENT. SOME INVESTORS BUY
STOCKS BECAUSE OF THE DIVIDENDS THEY EXPECT TO RECEIVE FROM THE
COMPANY. NON-DECLARATION OF DIVIDENDS MAY DISAPPOINT THESE
INVESTORS. HENCE, IT IS THE ROLE OF A FINANCIAL MANAGER TO DETERMINE
WHEN THE COMPANY SHOULD DECLARE CASH DIVIDENDS.
BEFORE A COMPANY MAY BE ABLE TO DECLARE CASH DIVIDENDS, TWO
CONDITIONS MUST EXIST:
1. THE COMPANY MUST HAVE ENOUGH RETAINED EARNINGS (ACCUMULATED
PROFITS) TO SUPPORT CASH DIVIDEND DECLARATION.
 FUNCTIONS OF A
FINANCIAL MANAGER
WHAT DO YOU THINK WILL AFFECT THE DECISION OF
MANAGEMENT IN PAYING DIVIDENDS?
ONE OF THE FUNCTIONS OF A FINANCE MANAGER IS INVESTING
AND ITS AVAILABLE CASH MAY BE USED TO INVEST IN LONG TERM
INVESTMENTS THAT WOULD INCREASE THE PROFITABILITY OF THE
COMPANY. SOME SMALL ENTERPRISES WHICH ARE UNDERGOING
EXPANSION MAY HAVE LIMITED ACCESS TO LONG TERM
FINANCING (BOTH LONG TERM DEBT AND EQUITY). THIS RESULTS
TO THESE SMALL COMPANIES REINVESTING THEIR EARNINGS INTO
THEIR BUSINESS RATHER THAN PAYING THEM OUT AS DIVIDENDS.
 FUNCTIONS OF A
FINANCIAL MANAGER
ON THE OTHER HAND, A COMPANY WHICH HAS ACCESS TO LONG TERM SOURCES OF FUNDS
MAY BE ABLE TO DECLARE DIVIDENDS EVEN IF THEY ARE FACED WITH INVESTMENT
OPPORTUNITIES. HOWEVER THESE INVESTMENT OPPORTUNITIES ARE GENERALLY FINANCED
BY BOTH DEBT AND EQUITY.
- THE MANAGEMENT USUALLY APPROPRIATES A PORTION OF RETAINED EARNINGS FOR
INVESTMENT UNDERTAKINGS AND THIS MAY LIMIT THE AMOUNT OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION.
- CREDITORS ARE NOT WILLING TO FINANCE ENTIRELY THE COST OF A COMPANY’S LONG
TERM INVESTMENT. HENCE, THE NEED FOR EQUITY FINANCING (E.G. INTERNALLY
GENERATED FUNDS OR ISSUANCE OF NEW SHARES).
- EXAMPLES OF THESE COMPANIES ARE PUBLICLY LISTED COMPANIES SUCH AS PLDT, GLOBE
TELECOM, AND PETRON. PLDT AND GLOBE ARE TWO OF THE PHILIPPINE LISTED COMPANIES
WHICH HAVE GENEROUSLY DISTRIBUTED CASH DIVIDENDS FOR THE LAST FIVE YEARS
 FUNCTIONS OF A
FINANCIAL MANAGER
FOR COMPANIES WHICH HAVE LIMITED ACCESS TO CAPITAL AND
HAVE TARGET CAPITAL STRUCTURE, THEY MAY END UP WITH A
RESIDUAL DIVIDEND POLICY. THIS MEANS THAT WHEN
COMPANIES ARE FACED WITH INVESTMENT OPPORTUNITIES,
INTERNALLY GENERATED FUNDS WILL BE USED FIRST TO
FINANCE THESE INVESTMENTS AND DIVIDENDS CAN ONLY BE
DECLARED IF THERE ARE EXCESS FUNDS.
 INTEGRATION OF LEARNING

EXPLAIN WHY SHAREHOLDER WEALTH MAXIMIZATION SHOULD BE THE

OVERRIDING OBJECTIVE OF MANAGEMENT.
WHAT OTHER POSITIONS CAN YOU THINK OF THAT ARE RELATED TO FINANCIAL
MANAGEMENT?
THANK YOU FOR LISTENING!