BUSINESS

FINANCE
Lesson 1
FINANCIAL
MANAGEMENT
As a student, what are your
daily financial activities? How
do you manage your finances?

2
What are your
personal goals?
Is finance
important in
achieving these
goals?

3
Like individuals,
businesses also
need to manage
their finances to
achieve their
goals.

4
Quick Look

Personal financial goals should be clear and achievable so that you can
figure out the strategies and activities that you need to do and perform.
Some people seek help from financial advisors to help them plan,
allocate, invest, and monitor their money.

5
Quick Look

In the same way, companies employ financial managers to manage and

control their funds. These people are instrumental in identifying and
executing business strategies to achieve their goals.

6
How can financial management help
individuals, businesses, and governments
achieve their goals?

7
 Financial Management

● “the science and art of managing money” (Gitman and

Zutter, 2012)

● application of management functions such as planning,

organizing, leading, and controlling financial assets to
achieve organizational goals

8
 Finance is...

● both a science and an art

● application of economic and accounting concepts and
principles
● system, structures, and process
● management, allocation, utilization
● financial resources, investments, and expenditures

9
 AREAS OF FINANCE

● PUBLIC FINANCE
● PRIVATE FINANCE
Under private finance - Personal Finance & Business
Finance.

10
 Financial Management in Business

● determines the following:

○ how much additional funds are needed and how to
obtain it
○ how, where, and when to invest if there are excess
funds

● requires the analysis of relevant business data

11
 The Financial System

● interaction between people, businesses, and governments

● facilitates and expedites the flow of funds or financial
capital
○ between savers and borrowers or investors
○ from savings to investments

12
 The Financial System

Components

● financial institutions
● financial markets
● financial instruments

13
 The Financial System

Financial Institution

an organization that directs

the transfer of financial
resources from its source to
potential users (Kaliski,
2007)

14
 The Financial System

Financial Institution

plays the part of

intermediaries, managing
the efficient flow of funds
between savers and
borrowers (Collins, 2012)

15
 Commercial Banks and Insurance Companies

Closer L
o ok

● Banks where people

○ keep their savings
○ withdraw their money
○ acquire credit and debit cards
○ apply for personal or business loans
● Insurance and investment companies where people
○ pay premiums
○ invest their money
○ transfer risks

16
The Financial System

Financial Market

provides a platform for

financial managers to
acquire funds from various
sources (Kaliski, 2007)

17
The Financial System

Financial Markets

allows the exchange of

financial resources in
● capital market
● money market

18
 The Financial System

Capital markets
● exchange of long-term
securities
● traded through brokers
and dealers
● may or may not occur in
an organized stock
Capital Markets exchange

19
 The Financial System

Money markets
● exchange of short-term
securities
○ treasury bills,
commercial paper,
and negotiable
instruments (Collins,
Money Markets 2012)

20
 The Stock Market

Closer L
o ok

Philippine Stock Exchange (PSE) is where the buying and selling

of corporate stocks happen. The PSE is an example of a capital
market.

21
 The Financial System

Financial Instrument
any contract which
produces a financial asset
of one party while creating
a financial liability or equity
instrument of another
(IFAC, 2020)

22
 Financial System

Financial Instrument

Examples: corporate bonds,

checks, futures, option
contracts, shares of stock

23
 Check Your Progress
Check Y
our
Progres
s

What are the main components of a financial system?

24
Financial Management

Wealth Maximization

● increasing the business's

value which also increases
the value of shares held by
its stockholders

25
Financial Management

Wealth Maximization

● overall long-term goal in a

business
● takes into account both risks
and return; growth and
survival

26
 Financial Management

Profit Maximization
● short-term profits may
increase at the
expense of long-term
profitability

27
 Financial Management

Profit Maximization
● the company may
need to borrow money
to increase sales or
expand production
capacity

28
 Financial Management

Ethically and Socially

Responsible
● Profit realization and
wealth maximization
should not be the only goal
of a finance officer.
Protecting the rights of the
consumers and business
community should be
parallel with the goal of
profit accumalation.
29
 Increased Value of Shares

Closer L
o ok

If a business spends the funds to develop a valuable property,

say expansion, the investment coalition possibly recognizes
the future positive cash flows associated with the new
property by venturing up the price of the company's shares.
This is a concrete example of wealth maximization.

30
 Check Your Progress
Check Y
our
Progres
s

How is profit maximization different from wealth maximization?

31
 The Corporate Organizational Structure

Financial managers need to be familiar with the flow of funds

within the company.

A common corporation is divided into various departments,

each of which is responsible for a different set of tasks.

32
The Corporate Organizational Structure

33
 The Corporate Organizational Structure

Board of Directors President and CEO

● highest officer in managing
● elected by shareholders the business to achieve
long-term (CEO) and short-
● represents the
term (President) goals
shareholders in
● for some companies, these
overseeing the business are different persons and
entities

34
 The Corporate Organizational Structure

VP for Sales and VP for Production

Marketing
● responsible for leading ● leads the creation of
revenue and client goods and services
portfolio activities of the
company

35
 The Corporate Organizational Structure

VP for VP for Finance or

Administration Chief Financial
Officer (CFO)
● leads the human
resources and general ● manages acquisition of
management activities funds, investments,
operating activities, and
dividend policies

36
 Check Your Progress
Check Y
our
Progres
s

What are the four major roles of a Chief Financial Officer (CFO)?

37
 The Roles of Financial Manager

Financial managers are

involved in different decisions.

38
 The Roles of Financial Manager

Financing Decisions Types of Financing:

● when, where, and how to ● debt financing

acquire funds for the ● equity financing
company

39
 The Roles of Financial Manager

Investing Decisions Types of Investments:

● what investments would ● short-term (working

be profitable to the capital)
company ● long-term (capital
budgeting)

40
 The Roles of Financial Manager

Operation Decisions
The company has
options on whether
● how to finance working to finance working
capital accounts such as capital needs by
accounts receivables and
long-term or short-
inventories
term.

41
 The Roles of Financial Manager

Dividend Policies
A common goal of all
business ventures is
● how much should be
to earn profit or to
distributed among the
shareholders
have a positive
● how much should be return.
retained for future
contingencies

42
Keep in Mind

● Financial management helps individuals, governments, and

businesses achieve their goals. It involves finance: the activity of
acquiring, spending, and managing money and other financial assets.

43
Keep in Mind

● Financial management is the effective and efficient management of

assets, liabilities, and equity to achieve the company’s primary goal:
the maximization of shareholders’ wealth. To do this, financial
managers consider the long-term results, the risks or uncertainty,
the timing of returns, and the stockholders’ return.

44
Keep in Mind

● Financial managers also make decisions based on the information

they obtain from the financial system. The financial system is a mix
of institutions and mechanisms that expedite the flow of funds from
saving to investments.

45
Keep in Mind

● The four important roles of a

financial manager are financing,
investing, operating, and dividend
policy.

46
Try This

Raise a hand checkmark if the statement is correct. Otherwise,

show a hand crossmark.

1. The shareholders’ wealth is measured by the stock price.

47
Try This

Raise a hand checkmark if the statement is correct. Otherwise,

show a hand crossmark.

2. Financial markets may either be depositary or non-

depositary.

48
Try This

Raise a hand checkmark if the statement is correct. Otherwise,

show a hand crossmark.

3. Profit maximization is the primary goal of a financial

manager.

49
Try This

Raise a hand checkmark if the statement is correct. Otherwise,

show a hand crossmark.

4. In achieving the objective of profit maximization, the

financial manager tends to select the one that is expected
to result in the highest return.

50
Try This

Raise a hand checkmark if the statement is correct. Otherwise,

show a hand crossmark.

5. The financial manager suggests the best capital structure

for the company.

51