FUNDAMENTALS OF FINANCE

AND FINANCIAL MANAGEMENT

"To Finace" would mean to provide funding ,in the form
of loan or borrowed money with the intent of collecting
the money back after a specified period of time.

Finace is also a field in business the allocation of scarce

resources which includes money.
WHAT IS FINANCIAL
MANAGEMENT?
Financial management on the other hand ,has broader
meaning as it covers the planning , organizing , leading
,and controlling of all financial activities of an
organization. It puts emphasis on managing the funds of
an organization which includes day-to-day operations ,
investment decisions ,and financing those investments.
BRANCHES OF
FINANCE
Public finace - is the field of finance which deals with
the collection of taxes and budget allocation for
programs designed to benefit the general public and
the production and distribution of public goods.
Personal finance - it encompasses
everything that pertains to
personal financial planning,
including coming up with a budget
that matches one's short- and long-
term needs, creating a savings plan
for contingencies, investing in
financial products which are often
intended for retirement, and
investing for the purpose of
maximizing wealth.
This area covers banks, insurance companies, finance
Stability
companies and other financial intermediaries. Financial
Intermediaries are also nonbank financial institutions
which offer specialized financial services to businesses.
Corporate finance - is primarily concerned with the
management of all the financial activities of an
enterprise or a business organization. The ultimate
goal of corporate finance is to maximize shareholder
value through sound financial planning.
STUDY OF
CORPORAT
E FINANCE
Investment - This area focuses on investment options
and decisions made by both individual and corporate
investors. Some of the considerations made are the risk-
return trade -off,the prices of financial products,and the
financial products to be included in ones portfolio of
investment in order to maximize return.
This area refers to services offered by
organizations whose line of business is to
help individuals and other organizations
manage money.
 MANAGERIAL
(BUSINESS) FINANCE

Every organization, public or

private ,relies heavily on
sound decisions on the
following:
• Cash flows (inflow and outflow)
• How to finance the acquisition of assets plans
• Which financing options to access when the supply of
cash is deficient
• What to do with the firm's excess cash
• Optimal inventory levels
• Account receivable and accounts payable management
• How mush receivable and accounts shouldbe paid out
to dividend vs. how much should be reinvested in the
form
• Whether to merge or acquire others firms
Provides financial data which are
intended to help internal users in making
decisions about the future of the
organization.
• Are involved in planning wherein they contribute in
identifying goals and objectives, setting targets and
establishing control measures in order to monitor
performance.
• Also tasked to provide the members of the top
management.
Overall financial plan, which includes detailed
budgets for the different programs,is in some
ways synonyms with measurable goals.
measurable goals
 Research and Development

Which in some cases ,falls under Marketing ,in

terms of budget devoted for the creation of new
products or improvements that need to be made on
existing products.
The Office of HR will rely on Finance for
data on how much the organization can
spend on wages , benefits, learning and
development and activities aimed at boosting
employee morale .
Finance will help the Marketing department by
determining the optimal amount of budget that
should be spent on marketing activities such as
advertising and promotion.
 Advertising

Sale Public
The five
Promotion Promotion Mix relations
Elements

Personal Direct
selling Marketing
Expansion - if the decision makers in an
organization find it imperative to expand
,Finance will have to supply them with
historical financial data to see whether or not
performance can help predict the financial
outlook if additional capital expenditure is to
be made
Meeting Contingencies - Finance can help the
organization by including in the budget provisions
for the external risks.Such approach also minimize
the disruption in the way the business operates
when one or more of the contingencies occur.
Finance is responsible for figuring out how much
taxes are due, the licences and permits that need to
be processed and paid to continue with operations
and even the training of employees on the
treatment of sales tax and discounts given to
customers.
• Finance is to tasked to include in the master budget
plan the disposal ,sale ,or acquisition of a fixed assets
such as machinery and equipment or the building of a
new plant.
• Finance are also responsible in for projecting future
cash flows if the asset to acquired is expected to bring
in revenues or help with cost efficiency.
ANALYSIS
AUDIT

ASSESSMENT

QUALITY
RESULTS
PLAN
Organizational charts which show how Finance is
positioned in an organization .

Board of Directors

Chief Executive Officer

(CEO) /President

Chief operating officer (COO) Chief Financial officer (CFO)

Sales and Production Human Accounting Treasury,
Credit and
Marketing Logistics Resources and Capital Investors
Budgeting Relation Collection
Is an organization that handles financial transaction
for individuals, groups and other organizations -
profit , nonprofit, private or government -
owned.Some financial institutions are smaller like
community- based rural banks over large urban-
based commercial banks
As the name implies ,manages money that
deposited by individuals and organization.
In the other hand thats not handle deposits .Instead such
institutions serve as Intermediaries between savers and
the demanders of funds, or individuals , household and
other business who need additional fund to support
personal needs or business operations
Types of non depository financial institutions
 Life insurance company
 Investment company
 Mortgage companies
 Check-cashing outlets
 Pawnshop
It is a Financial contract of different nature made
between institutional units .These comprise the full
range of financial claims and liabilities between
institutional units, including contingent liabilities like
guarantees, commitments, etc.
Types of Financial

Institutions
Accept deposits from individuals and
organization that have excess funds and provide
loans to those who need or want to borrow money.
 Functions of Commercial Banks
1. Accepting Deposis
2. Providing credits
3. Payment and Withdrawal Facilities
4. Credit Creation
5. Interbanking Transaction
6. Agency and Utility Services
7. References
8. Safety Custody
9. Other Services
They are also refered to as S&L or thrift banks.
Unlike commercial banks the bulk of the financial
transactions in A&L are decided to residential
mortgages
 Savings and loans bank in the
Philippines

 Allied Savings Bank.

 Equicom Savings Bank, Inc
 Asiatrust Development Bank.
 Bank of Calape.
 Bank One Savings and Trust Corporation.
 Bataan Development Bank.
 Bataan Savings and Loan Association, Inc.
 BPI Direct Savings Bank.

This is done to encourage more people to become
members . However it is not open to the general public.
Because of the association will cooperatives, only
members are serviced by credit unions . Another feature
of credit unions is that there is usually profit sharing
between members at the end of each fiscal year.
 Bank Credit Unions

For Profit Not for Profit

Membership not Required Membership Required

More Branches Fewer Branches

Investment Banks
Perform the task of an intermediary
which facilities the transaction of
individuals and institution in investing
Insurance Companies
l Provide individuals and organizations
a way to manage risk .
lMake money by investing the premiums
collected from policyholders .They use
statistics as a predictive tool to make
financial projections
Brokerage
A financial institution that earns through commissions.

A brokerage firm can be :

Discount brokerage firm

allow their clients to do their own research about investment options.

Full service brokerage firms

As the terms implies, provide clients advice and help them manage their investment
portfolio

Investment portfolio is a collection of financial products owned by a single investors.

Investment Companies
Are corporation wherein individuals and other
organizations invest in investment portfolios that
are managed by professional who are tasked to
keep track of market trends and the performance
of different financial products or instruments.
 Is a means for the buying and selling of
stocks, bonds and other financial
instruments.
Stocks
Are shares of a corporation sold to investors

Bonds
Are in essence ,money loaned.
Money Markets
Are the markets where transactions involving short-term debt securities take
place.

Short term debt

Just like in accounting ,is one that is due and /or demandable within one year
or less.

Following example are

lTreasury bills
lCommercial paper
lNegotiable certificate of deposit issued by government, businesses, and other
financial institutions
 Short-lived
mortgage & asset-
backed securities
Foreign
Repurchase Exchange swaps
Agreements

Eurodollars Municipal
Deposit Notes
Money Treasury
Funds Bills

Commercial Federal
Paper Reserve
Certificate
Federal Federal agency Of deposit
Funds Short-term
Securities
Transactions involving long- term debt, or those maturing in more
than one year , take place. The buying and selling of stocks issued by
corporation also take place in capital markets.

Two types of markets

Primary market
Where new issues of securities are traded.

Secondary market
 Linkin
g
Buyer
s
And
Seller
Raisin Infor
s
g mati-
Capit on
al Role
CAPITAL
MARKET
Risk Avoid
Mana ing
gem- Arbitr
ent Inves
age
ting
Shift
Cons
ump-
tion
Role of Financial Intermediaries
in Financial Markets
To reduce cost we need to use intermediaries
because they already know which financial product
to offer to particular individuals and firms who need
access to additional funds. At the same time, they
ensure that the savers of funds earn a reasonable
return on their money.
Diversification
Intermediaries help savers of fund
lower their risk by helping them choose
the types of financial products that they
will include in their portfolio. This
process is called diversification.