TOPIC 1
MANAGERIAL FINANCE AND FINANCIAL MANAGEMENT
Introduction to Finance Function
•Finance can be defined as the “science and art of managing money. ”
•Science “has strong roots in relatedscientific areas, such as statistics
and mathematics”
•Art “skills to manage it”
Finance Functions
❑ Financial Analysis and Reporting
▪ help you understand your company's financial condition, helping you
determine its creditworthiness, profitability and ability to generate wealth, but
will also provide you with a more in-depth look at how well it operates
internally
❑ Cash Flow Management
▪ is tracking and controlling how much money comes in and out of a business
in order to accurately forecast cash flow needs. It's the day-to-day process of
monitoring, analyzing, and optimizing the net amount of cash receipts—minus
the expenses.
❑ Financing Decisions
▪ A firm has to decide the method of funding by assessing its financial
situation and the characteristics of the source of finance.
❑ Risk Management
▪ is the process of identifying, measuring and treating property, liability,
income, and personnel exposures to loss.
Controllership and Treasury functions
❑ Controllership
▪ oversee standard accounting functions. These functions include keeping
internal financial records, generating reports, issuing and collecting payments,
processing payroll and ensuring compliance with relevant laws and
regulations
❑ Treasury
▪ oversees the general financial management of an organizing committee.
They plan and keep track of budgets within the organization, collect, deposit,
and keep track of funds, write cheques, and provide financial reports regularly
to fellow committee members.
The controller is more involved in the presentation of financial statements,
while the treasurer takes over to decide how to handle the money. The
treasurer builds relationships with investment banks to agree on the best
ventures to grow the company's funds, while the controller discusses the best
interest for loans.
FINANCIAL DECISIONS
The financial decision involve in investing, financing, and operating
• Investing-selecting and acquiring the long-term and short-term assets in
which funds will be invested by the business.
• Financing-about the amount of finance to be raised from various long-term
sources.
• Operating-determinations made in regard to the routine, ongoing activities
of an organization.
Financial Management-to guide businesses or individuals on financial
decisions that affect financial stability both now and in the future.
Management Accounting-a method of accounting that creates statements,
reports, and documents that help management in making better decisions
related to their business' performance
Financial Accounting-the process of recording, summarizing, and reporting
a company's business transactions through financial statements.
Management accounting focuses on the stewardship or implementation
aspects of management actions while financial accounting focuses on the
investment uses of information. Management accounting is thus
simultaneously a profession that supports financial reporting while attempting
to develop beyond this narrow scope.
TOPIC 2
FINANCIAL MANAGEMENT – is the process of planning, directing,
organizing, controlling and monitoring of the monetary resources in order to
achieve the objectives and goals of the business
A. SOLE PROPIERTORSHIP
Simplest form of business
Owned by individual.
Subject to fewer government regulations.
DTI is the government registration agency.
Unlimited liability of owner.
Limited life.
Amount of capital raised is significantly limited
B. PARTNERSHIP
Provided by the New Civil Code (NCC)
Two or more who bind themselves.
Juridical Personality separate and distinct from that each of partners.
The contract of partnership having a capital of 3,000 or more, in money, or
property, is required
C. CORPORATIONS
As provided in Section 2 of Republic Act No. 11232 or also known as the
Revised Corporation Code of the Philippines (RCC), is an artificial being
created by the operation of the law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its
existence.
CHARACTERISTICS
Types of Corporation
A. As to Legal Status:
De Jure Corporation- Accordance with the law.
De Facto Corporation- exists only in fact but not in law because there is
flaw in its incorporation.
B. As to Functions and Governing Law:
Public Corporation- these organized by the state for the government to
promote general welfare of the public.
Private Corporation- these are organized by private individuals for the
purpose of generating profit
C. As to existence of Stocks:
Stock Corporation- capital stocks are divided into shares and is authorized
to distribute to the holders thereof share dividends or allotments of the
surplus profits.
Non-stock Corporation- No stocks issuance and no distribution of
dividends to its members.
D. As to shares being traded in stock exchange:
Publicly listed company- this is a corporation whose share are offered to
public or traded.
Privately owned company- going private, it restricts the stockholders.
ROLE OF FINANCIAL MANAGER
THE CORPORATE ORGANIZATION STRUCTUR
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.
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
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
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.
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.
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
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.)
Investing involves deploying capital (money) toward projects or activities that
are expected to generate a positive return over time.
Short-term investments, also known as temporary investments, are financial
investments that can easily be converted to cash.
Long-term investment is an account a company plans to keep for at least a
year such as stocks, bonds, real estate, and cash. Long-term investors are
generally willing to take on more risk for higher rewards.
Operational decisions are short-term choices that are typically made on a
weekly, daily, or hourly basis. They are primarily concerned with operational
details, daily resource allocation, inventory control, and delivery routing to
maximize product flow along biomass-based production chains
Dividend policy is a policy a company uses to structure its dividend payout.
Put simply, a dividend policy outlines how a company will distribute its
dividends to its shareholders. These structures detail specifics about payouts,
including how often, when, and how much is distributed.
MEANING
Profit maximization is the process by which a business arranges its prices
and cost structure to achieve the highest possible profit. The central goal of
the organization is to increase its profits.
Wealth maximization is the concept of increasing the value of a business in
order to enhance the value of the shares held by its stockholders. This may
involve additional investments in intellectual property and strategic positioning,
as well as attention to managing the risk profile of a business.
