Appreciate the

objective of
Financial
Management
Presenter
Maureen B. Velasco
 Budgeting
Finance

Sole
Proprieto Partnership
Definition of rship
Relevant Terms
Corporatio
n

Presentation Title
2
Corporations
a. Privately owned
corporations are often
owned by family
members whose stocks
may not be offered to
outsiders unless consent
by the family members is
secured.
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Corporations (cont.)
b. Companies which are publicly listed are owned by
unrelated investors and are traded in organized
exchanges like the Philippine Stock Exchange. While
there are many stockholders, there is generally a group
of investors or a family which controls each listed
company
Example:
 BPI, the biggest stockholder is Ayala Corporation
 Banco De Oro, it is SM Investment Corporation
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  As a noun, finance means
management of money, the
monetary support for an
enterprise, or the money
resources of a government,
WEBSTER company, or person
DEFINED
FINANCE AS A
NOUN AND A
VERB
 As a verb, finance is to provide
capital for a person or
enterprise.
Finance is identifying your expenses and your resources.
This is called budgeting.

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 GOALS OF THE FIRM AND FACTORS
THAT
INFLUENCE THE CHANGE IN MARKET
PRICE.

7
 The overall objective
of a shareholder
should be wealth
maximization.

Presentation title 8
 Primary Goals of Business
1.To Earn Profit
• Funds are invested in a business to earn
sufficient return on investment.
• Net profit realized results in an increase in
assets and owner’s equity. Part of it will
be declared as dividends in case of
corporation with the remainder left in
business
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Primary Goals of Business
(cont.)
Earnings per share (EPS)
o refers to how much net income is
earned for every share of capital
stock outstanding.
o the summary figure that investors use
in evaluating past performance of a
business.
o the higher the EPS, the higher is the
price a stock can command in the
market. 10
 Primary Goals of Business (cont.)
What are the factors that Influence Market Price?

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 Primary Goals of Business (cont.)
What are the factors that Influence Market Price?
PROFITABILITY
Profit is a measure of the financial performance of a
company for a period.

Examples:
Suppose the following Income Statements and Cash Flow
Statements of companies A, B and C were presented to you.
Which do you think is a more attractive company?

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 Primary Goals of Business (cont.)
Income Statement Cash Flows
Sales Php100,000 Collections from Php 0
COMPANY customers
A Less: Costs 50,000 Payment of expenses 50,000
Profits Php50,000 Net Cash Flow (Php50,000)
Income Statement Cash Flows

COMPANY Sales Php100,000 Collections from customers Php100,000

B Less: Costs 150,000 Payment of expenses 50,000
Profits (Php50,000) Net Cash Flow Php50,000

Income Statement Cash Flows

Sales Php100,000 Collections from customers Php100,000
COMPANY Less: Costs 70,000 Payment of expenses 70,000
C Profits Php30,000 Net Cash Flow Php30,000
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 Primary Goals of Business (cont.)
Income Statement Cash Flows
Sales Php100,000 Collections from Php 0
COMPANY customers
A Less: Costs 50,000 Payment of expenses 50,000
Profits Php50,000 Net Cash Flow (Php50,000)

• Company A is profitable but generated negative cash flows

which resulted from the uncollected accounts receivable
Without adequate cash inflows to
of PHP100,000.
meet its obligations, the company will face
liquidity problems, regardless of its level of
profits. 14
 Primary Goals of Business (cont.)
Income Statement Cash Flows

COMPANY
Sales Php100,000 Collections from customers Php100,000

B Less: Costs 150,000 Payment of expenses 50,000

Profits (Php50,000) Net Cash Flow Php50,000

 Company B has a positive cash flow but is unprofitable.

This is a result of the company’s delay in payment of its
costs. Accordingly, the Company will soon have to pay
the remaining PHP100,000 liability and its cash will no
longer be sufficient. Again, without adequate cash inflows
to meet its obligations, the company will face liquidity
problems. 15
 Primary Goals of Business (cont.)
Income Statement Cash Flows

COMPANY Sales Php100,000 Collections from customers Php100,000

C Less: Costs 70,000 Payment of expenses 70,000
Profits Php30,000 Net Cash Flow Php30,000

 Company C is profitable and has a positive

cash flow. Based on the information
provided, Company C seems to be the best.
Good liquidity and reasonable leverage
position.
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 Primary Goals of Business (cont.)
What are the factors that Influence Market Price?
DIVIDENDS
Holders of shares receive dividends from 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.

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Primary Goals of Business (cont.)
COMPETENT MANAGEMENT
 Competent managers may have any of
the following attributes:
1)visionary
2)decisive
3)people-oriented,
4)inspiring,
5)innovative,
6)respected and
7) experienced/seasoned manager.
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Primary Goals of Business (cont.)

 Corporate plans that improve the business

prospects.

 External Factors
 These factors influence the general reaction of
investors in making an investment decision.
 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
Presentation title company’s management. 19
Primary Goals of Business (cont.)

2. To increase its own value as an economic

entity.
 Growth is
-measured in terms of increase in asset that appreciate, improve production capacity
accompanied by increase in sales volume and increase in owner’s equity.
-Profitability contributes to growth and stability specially when part of realized profit
is retained or plowed back into business.
 Stability
-refers to the ability of a business to weather the ups and downs in the economy or its
ability to continue operations despite anticipated risks in a business.
-measured primarily based on the relative amount of owner’s equity. Owner’s equity is the
difference between total assets and total liabilities of an entity. (Flores)
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Primary Goals of Business (cont.)
3. To improve the quality of life in the
community
 The social responsibility of a businessman
refers to his contribution to the improvement
of the quality of life in the community.
 This is not only in the form of pecuniary
contributions but more on how his business
is able to improve the economy and its
environment. He adheres to legal and moral
standards by adopting company objectives,
policies, and practices consistent therewith
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EVALUATION:
1.The primary goal of the financial manager is
___.
A.maximizing profit
B.minimizing return
C.maximizing wealth
D.minimizing risk
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EVALUATION:
2. Corporate owners receive realizable return
through ________
A. earnings per share and cash dividends.
B. increase in share price and cash dividends.
C. increase in share price and earnings per
share.
D. profit and earnings per share.
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EVALUATION:
3. The wealth of the owners of a corporation is
represented by ______

A. A. profits C. earnings per share

B. cash flow D. share value

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EVALUATION:
4. The goal of profit maximization would result
in priority for _____
A. cash flows available to stockholders
B. earnings per share
C. risk of the investment
D. timing of the returns
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EVALUATION:
5. A financial manager must choose between four alternative
Assets: 1, 2, 3, and 4. Each asset costs P35,000 and is expected
to provide earnings over a three-year period as described below.

ASSET Year 1 Year 2 Year 3 Based on the profit maximization

goal, the financial manager would
1 P21,000 P15,000 P6,000
choose _____.
2 P9,000 P15,000 P21,000 A. Asset 1.
3 P3,000 P20,000 P19,000 B. Asset 2.
4 P6,000 P12,000 P12,000 C. Asset 3.
D. Asset 4
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Thank you
Mirjam Nilsson
mirjam@contoso.com
www.contoso.com