BUSINESS

FINANCE
INTRODUCTION
TO FINANCIAL
MANAGEMENT
• LEARNING OUTCOMES
1. Explain the major role of financial
management and the different
individuals involved.
2. Distinguish among financial
institution, financial instrument and
financial market.
3. Enumerate the varied financial
institutions and their corresponding
services.
3
• LEARNING OUTCOMES
4. Compare and contrast varied
financial instruments.

5. Explain the flow of funds within an

organization through and from the
enterprise and the role of the financial
manager.

4
• INTRODUCTION
Financial management involves the
process of planning, organizing,
directing and controlling the financial
activities of the firm. This includes
obtaining and utilizing funds for the
operations of the enterprise. It also
deals with the application of general
management principles and capitalizes
on the financial resources of the
enterprise.
5
6
MAJOR ROLE
OF FINANCIAL
MANAGEMENT
Major role of financial management
1. to ensure regular and
adequate supply of funds;
2. to ensure adequate
returns to the shareholders
through capital gains which
is which are dependent upon
the earning capacity and the
market price of the share;

8
Major role of financial management

3. to ensure optimum funds

utilization at least cost;
4. to ensure investment of
funds in safe ventures so
that adequate rate of return
can be achieved; and

9
Major role of financial management

5. to design a sound capital

structure by maintaining a
fair composition of capital
through a balance between
debt and equity capital.

10
FINANCIAL MANAGEMENT
FUNCTIONS:

1. Estimation of capital requirements: One of the major

functions of financial management is to make
estimation with regard to capital requirements of the
company.

2. Determination of capital composition: After the

estimation has been made, a decision on the capital
structure follow so this involves short- term and long-term
debt equity analysis.
11
FINANCIAL MANAGEMENT
FUNCTIONS:

3. Choice of sources of funds: For additional funds to be

procured, a company has many choices like:
• additional issuance of shares of stock and/or issue
bonds;
• loans from banks or any willing financial institutions;
and
• investments from the public in the form of bonds.

12
FINANCIAL MANAGEMENT
FUNCTIONS:

4. Investment of funds: The excess funds have to be

decided for allocation into profitable ventures so that there
is safety on investment and regular returns are possible.

5. Disposal of surplus: The net profits decision has to be

made and can be done in two ways:
1.Dividend declaration – it includes identifying the rate
of dividends and other benefits like bonus.
13
 2. Retained Earnings – The amount of earnings to be retained will depend
on the expansion plans, introduction of innovation, and diversification
strategies of the company.
6. Management of cash: Cash management is one of the important
decisions in financial management. Maintaining enough cash is
required for continuous operation and working capital like payment
of salaries and wages, payment of utilities (e.g., electricity and
water bills), payment to creditors for maturing obligations,
maintaining enough inventories, purchases of raw materials, etc.

14
7. Financial controls: Financial management involves not
only planning, procurement and utilization of funds but
also exercising control over finances. This can be done
through many techniques like ratio analysis, financial
forecasting, cost and profit control, etc.
• 

15
 INDIVIDUALS INVOLVED IN FINANCIAL MANAGEMENT
The senior leaders of an
organization are responsible
for all aspects of its
financial health. They are
the ones who understand
the unit’s financial situation
and do not allow
unintended deficits to
occur.
Unit heads are responsible for
internal financial management and
to develop budgeting, financial
reporting and management
practices. Units are encouraged to
develop an oversight process that
builds on best practices.
 
16
COMPARISON 02
TOPIC 01 COMES HERE
Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Maecenas porttitor congue massa.
Fusce posuere, magna sed pulvinar ultricies,
purus lectus malesuada libero, sit amet
commodo magna eros quis urna.
Nunc viverra imperdiet enim. Fusce est. Vivamus
a tellus.
Pellentesque habitant morbi tristique senectus et
netus et males
Pellentesque habitant morbi tristique senectus et
netus et malesuada fames ac
Lorem ipsum dolor sit amet, consectetuer
adipiscing elit. Maecenas porttitor congue massa.
Fusce posuere, magna sed pulvinar ultricies,
purus lectus malesuada libero, sit amet
commodo magna eros quis urna.
Nunc viverra imperdiet enim. Fusce est. Vivamus
a tellus.
Pellentesque habitant morbi tristique senectus et
netus et males
Pellentesque habitant morbi tristique senectus et
netus et malesuada fames ac
TOPIC 02 COMES HERE
17
Shareholders: The shareholders elect the Board of Directors
(BOD).
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)
18
President (Chief Executive Officer):

-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.
19
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)
20
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)

21
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)
22
CHIEF FINANCIAL OFFICERS (CFOS) OF THE RESPECTIVE CORPORATIONS:

JEAN-MARC HUËT YSMAEL V. BAYSA ALBERT DE LARRAZABAL JOSE T. SIO

(UNILEVER) (MORALES, 2013) (KLOBUCHER, 2015) (MONTEALEGRE, 2015)
“Finance plays a critical “It’s very exciting “Yesterday’s solutions “Now, we don’t go out
role across every aspect because you are not just are never adequate for because we need funds.
of our business. We thinking of today but the future” We go out because it’s
enable the business to what the company will an opportunity.”
turn our ambition and need in the future”
strategy into sustainable,
consistent and superior
performance”
23
24
Role of Financial Manager
A financial manager is a qualified person who
does have a lot of experiences in handling all the
important financial functions of an organization.
He or she should maintain far sightedness in
order to ensure that the funds are utilized in the
most efficient manner. The result of his or her
actions will directly affect the profitability,
growth and goodwill of the firm.
9
Main Function of a Financial Manager

1. Raising of Funds
In order to meet the obligation of the
business it is important to have enough cash
to maintain liquidity. Funds can be raised by
way of equity and debt but its ratio must be
properly sustained.

9
Main Function of a Financial Manager
2. Allocation of Funds
Once the funds are raised through different channels, the next
important function is to allocate the funds. Allocation of funds
should be made according to its optimal use based in order of
priorities. The best possible manner of allocation of funds must
consider the following points:
2.1. the fund requirements of the firm based on its growth
capability;
2.2. status of assets whether they are long-term or short-term;
and
2.3. mode by which the funds are raised.
9
Main Function of a Financial Manager
3. Profit Planning
Profit earning is one of the prime functions of
any business organization. Profit earning is
important for survival and sustenance of any
organization. Profit planning refers to
appropriate utilization of profits generated by
the firm.
9
Main Function of a Financial Manager
4. Understanding Capital Markets
A clear understanding of capital market is one of the
important functions of a financial manager. The
trading of shares of stock of a company in the stock
exchange will involve a lot of risks. The finance
manager is expected to realize the calculation of the
risk involved if ever a decision is arrived at in trading
of shares and other securities.
9
30
Abigail Jorilyn
“Saver” “users of funds”
31
 Financial Markets – Financial
markets are the mechanisms used to
trade the financial instruments.

32
 Financial Institutions – Financial institutions
are the ones that facilitate the transfer of
resources among those investors who are
involved in buying and selling of financial
instruments.

33
 Financial Instruments - Financial
instruments like stocks and bonds are recorded
evidence of obligations on which exchanges
of resources are founded. The effective
investment management of these financial
instruments is one of the important aspects of
the financing activities of any organization.
34
Financial System

Abigail Jorilyn

35
Financial Institutions – Financial
institutions are the ones that facilitate the
transfer of resources among those
investors who are involved in buying and
selling of financial instruments.
 
36
37
2. Commercial Banks
Commercial banks work directly with
businesses. The majority of large banks
offer deposit accounts, lending and financial
advice to any business in different
industries. Products offered at commercial
banks include checking and savings
accounts, certificates of deposit (CDs),
personal and mortgage loans, credit cards
and business banking accounts.
38
3. Credit Cooperatives
Credit cooperatives are not-for-profit
financial institutions that exist to serve its
members. Credit cooperatives provide
products and services to people who share
something in common, such as where they
work or live, or even their nationality. The
democratic nature of credit cooperatives
allows all members to have an equal voice in
the operation of the organization regardless
of the amount of money each person has on
deposit. 39
4. Savings and Loan Associations
Savings and loan associations are
financial institutions that are mutually
held and provide no more than 20% of
total lending to businesses. Individual
consumers use savings and loan
associations for deposit accounts,
personal loans and mortgage lending.

40
5. Investment Banks and Companies
Investment bank help individuals,
businesses and governments by raising
capital through the issuance of securities
instead of accepting deposits. Investment
companies or more commonly known as
mutual fund companies, pool funds from
individual and institutional investors to
provide them access to the broader
securities market.
41
6. Brokerage Firms
Brokerage firm is the one that provides
services to individuals and institutions
who are willing to buy and sell available
investment securities. Customers of
brokerage firms can place trades of
stocks, bonds, mutual funds, exchange
trade funds (ETFs) and some alternative
investments.
42
7. Insurance Companies
Insurance companies are financial
institutions that help individuals to transfer
risk of loss. The services of insurance
companies include protection against
financial loss due to death, disability,
accidents, property damage and other
misfortunes of individuals and businesses.

43
8. Mortgage Companies
Mortgage companies are financial
institutions that provide funds through
loans subject to the availability of property
used as collaterals. Most of these mortgage
companies have specialization in lending
options for commercial real estate only,
however, they also serve the individual
consumer market.
44
45
1. Savings Accounts
Savings accounts are a safe haven to store emergency
funds. It provides easy access to extra money and is
generally insured with Philippine Deposit Insurance
Company for maximum amount of P500,000.00. The
main drawback of such accounts is that interest rates
tend to be lower compared with that of other financial
instruments.
46
2. Time Deposits
Time deposits are deposits that cannot be withdrawn over a
fixed term or period. Since, they will not be withdrawn for
certain duration, time deposits earn higher interest rates
compared to savings and checking accounts, depending on
the amount placed and term. With the deposits being held for
a pre-specified length of time, the banks or financial
institution can re-invest/re-lend it for higher returns before
the term deposit matures.

47
3. Money Market Funds
Money market funds are relatively conservative and
low-risk instruments invested in highly marketable and
“near-cash” instruments like short term government
securities, money market securities, and other highly
marketable fixed-income instruments. These funds are
best suited for investors who are willing to take minimal
risks and are after investment returns better than
deposits.
48
4. Stocks
The stock market gives the opportunity to buy shares of
companies under normal circumstances. Companies list or
sell portions of the shares of stock to raise capital instead of
borrowing from financial institutions or using its cash flow.
The more profitable a company becomes, the more its share
prices increase over time. While trading stocks is one
investment that could give expected higher returns, there are
no guarantees that there will be returns all the time.

49
5. Bonds
A bond is a debt security wherein someone is borrowing
money and there’s another one lending it. As a security, it
means the borrower is under a legal obligation to pay the
lender. A bond is a certificate of debt issued by the
government or a company with a promise to pay a
specified sum of money at a future date and carries
interest at a fixed rate. The terms of bonds are usually
long term ranging more than one year to 30 years.
50
 In the Philippines, there are two basic types of bonds:
government bonds and corporate bonds.
Government bonds are also called retail treasury
bonds, treasury notes, T-bills, and many others. When
investing in government bonds, it means that the investors
are lending money to the government.
Corporate bonds are sometimes called long-term
commercial papers. Investing in corporate bonds means
that investors are lending money to a corporation.
51
6. Mutual Funds
A mutual fund is generally a pool of money from a
group of investors entrusted to a financial
institution for investment purposes. The fund is
usually professionally managed by a mutual fund
manager for investments in securities, like, shares
of stock, bonds, money market instruments or a
combination of these.
52
Below are the kinds of mutual funds, the qualities of the
investor, the risk involved and the term:
Mutual Fund Investor Risk Goal
Money Market Conservative Low 3-6 months
Fund
Bond Fund Moderately Moderate 1 year
Conservative
Balanced Fund In-between Balanced 1-3 years
Conservative and
Aggressive
Aggressive High 3 years or more
Equity Fund

Source: philpad.com
53
7. Annuities
An annuity is an insurance product that pays out
income on a predetermined amount during the
lifetime or upon its maturity. It is being used as
part of a retirement strategy. Annuities are a
popular choice for investors who want to receive
a steady income stream upon retirement.

54
Flow of Funds within an Organization
 

All business transactions include the exchange of value

between two or more parties which are measurable in
terms of money particularly cash if not on credit or on
account. Companies will not be able to attain growth by
offering on a cash basis only. But to survive in the long
run, there is a need to generate positive cash flows through
intensified collection of accounts or by ensuring that the
company’s long-term cash inflows exceed its long-term
cash outflows. 55
56