UNIVERSITY OF MAKATI

J. P. Rizal Ext., West Rembo, Makati City

COLLEGE OF BUSINESS AND FINANCIAL SCIENCE
Department of FINANCE MANAGEMENT
Course Title Title
Module
1
No. FINANCIAL MANAGEMENT 2

FINMAN 2 Module Leader PROF. RENNIEL B. HALLERA

Module
none
Contributors
Time Frame:
You are expected to finish all the activities, assignments, and
assessments of this 2nd week of the semester.

How to Complete this .

module? 1. Complete the reading assignment
2. View the shared educational video/reading materials about the course.
3. Participate in this week’s discussion (if any)
4. Complete the Module 1 requirement given by the professor
5. Submit other required outputs

Teaching Strategies Use of UMAK-LMS- TBL, Suggested Education video about the subjects ,
Online discussion (GoogleMeet, Zoom, Messenger, Google classroom) Voice-
over PowerPoint, or video-recorded lectures, Online links, and Online quizzes.

INTRODUCTION
INTRODUCTION

Finance is the lifeline of any business. However, finances, like most other resources, are always
limited. On the other hand, wants are always unlimited. Therefore, it is important for a business
to manage its finances efficiently. As an introduction to financial management, in this article, we
will look at the nature, scope, and significance of financial management, along with financial
decisions and planning.
LEARNING OUTCOMES

By the end of this module , you should be able to

1. Knowledge: Definition and Importance of Financial Management

2. Skills: Assess the best practices of the organization when it comes to financial
management
3. Attitude: The learner will learn to how to do team-collaboration about the topic

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 Financial Management

Let’s define financial management as the first part of the introduction to financial management.
For any business, it is important that the finance it procures is invested in a manner that the
returns from the investment are higher than the cost of finance. In a nutshell, financial
management

“Financial management is that area of business management devoted to a judicious use of

capital and a careful selection of the source of capital in order to enable a spending unit to move
in the direction of reaching the goals.” – J.F. Brandley

“Financial management is the operational activity of a business that is responsible for obtaining
and effectively utilizing the funds necessary for efficient operations.”- Massie

“Financial management is the activity concerned with planning, raising, controlling and
administering of funds used in the business.” – Guthman and Dougal

Nature, Significance, and Scope of Financial Management

Financial management is an organic function of any business. Any organization needs finances
CONTENT

to obtain physical resources, carry out the production activities and other business operations,
pay compensation to the suppliers, etc. There are many theories around financial management:

 Some experts believe that financial management is all about providing funds needed by
a business on terms that are most favorable, keeping its objectives in mind. Therefore,
this approach concerns primarily with the procurement of funds which may include
instruments, institutions, and practices to raise funds. It also takes care of the legal and
accounting relationship between an enterprise and its source of funds.
 Another set of experts believe that finance is all about cash. Since all business
transactions involve cash, directly or indirectly, finance is concerned with everything
done by the business.
 The third and more widely accepted point of view is that financial management includes
the procurement of funds and their effective utilization. For example, in the case of a
manufacturing company, financial management must ensure that funds are available for
installing the production plant and machinery. Further, it must also ensure that the profits
adequately compensate the costs and risks borne by the business.

In a developed market, most businesses can raise capital easily. However, the real problem is
the efficient utilization of the capital through effective financial planning and control.

Further, the business must ensure that it deals with tasks like ensuring the availability of funds,
allocating them, managing them, investing them, controlling costs, forecasting financial

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 requirements, planning profits and estimating returns on investment, assessing working capital,
etc.

The scope of Financial Management

The introduction to financial management also requires you to understand the scope of financial
management. It is important that financial decisions take care of the shareholders‘interests.

Further, they are upheld by the maximization of the wealth of the shareholders, which depends
on the increase in net worth, capital invested in the business, and plowed-back profits for the
growth and prosperity of the organization.

The scope of financial management is explained in the diagram below:

You can understand the nature of financial management by studying the nature of investment,
financing, and dividend decisions.

Core Financial Management Decisions

In organizations, managers in an effort to minimize the costs of procuring finance and using it
in the most profitable manner, take the following decisions:

Investment Decisions: Managers need to decide on the amount of investment available out
of the existing finance, on a long-term and short-term basis. They are of two types:

 Long-term investment decisions or Capital Budgeting mean committing funds for a long
period of time like fixed assets. These decisions are irreversible and usually include the
ones pertaining to investing in a building and/or land, acquiring new plants/machinery
or replacing the old ones, etc. These decisions determine the financial pursuits and
performance of a business.
 Short-term investment decisions or Working Capital Management means committing
funds for a short period of time like current assets. These involve decisions pertaining
to the investment of funds in the inventory, cash, bank deposits, and other short-term
investments. They directly affect the liquidity and performance of the business.

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 Financing Decisions: Managers also make decisions pertaining to raising finance from long-
term sources (called Capital Structure) and short-term sources (called Working Capital). They
are of two types:
 Financial Planning decisions which relate to estimating the sources and application of
funds. It means pre-estimating financial needs of an organization to ensure the
availability of adequate finance. The primary objective of financial planning is to plan
and ensure that the funds are available as and when required.
 Capital Structure decisions which involve identifying sources of funds. They also
involve decisions with respect to choosing external sources like issuing shares, bonds,
borrowing from banks or internal sources like retained earnings for raising funds.

Dividend Decisions: These involve decisions related to the portion of profits that will be
distributed as dividend. Shareholders always demand a higher dividend, while the
management would want to retain profits for business needs. Hence, this is a complex
managerial decision.

The primary objectives of financial management are:

 Attempting to reduce the cost of finance

 Ensuring sufficient availability of funds
 Also, dealing with the planning, organizing, and controlling of financial activities like the
procurement and utilization of funds.

FINANCE

Finance is a broad term that describes activities associated with banking, leverage or debt,
credit, capital markets, money, and investments. Basically, finance represents money
management and the process of acquiring needed funds. Finance also encompasses the
oversight, creation, and study of money, banking, credit, investments, assets, and liabilities
that make up financial systems.

Many of the basic concepts in finance originate from micro and macroeconomic theories. One
of the most fundamental theories is the time value of money, which essentially states that a
dollar today is worth more than a dollar in the future.

Types of finance
 Personal Finance- Financial planning involves analyzing the current financial position
of individuals to formulate strategies for future needs within financial constraints.
Personal finance is specific to every individual's situation and activity; therefore,
financial strategies depend largely on the person's earnings, living requirements, goals,
and desires.

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  Corporate Finance- refers to the financial activities related to running a corporation,
usually with a division or department set up to oversee those financial activities.

 Public Finance - includes tax, spending, budgeting, and debt issuance policies that
affect how a government pays for the services it provides to the public.

Function of Finance
Contemporary organizations need to practice cost control if they are to survive the
recessionary times. Given the fact that many top tier companies are currently mired in low
growth and less activity situations, it is imperative that they control their costs as much as
possible. This can happen only when the finance function in these companies is diligent and
has a hawk eye towards the costs being incurred. Apart from this, companies also have to
introduce efficiencies in the way their processes operate and this is another role for the
finance function in modern day organizations.

There must be synergies between the various processes and this is where the finance
function can play a critical role. Lest one thinks that the finance function, which is essentially a
support function, has to do this all by themselves, it is useful to note that, many contemporary
organizations have dedicated project office teams for each division, which perform this
function.

In other words, whereas the finance function oversees the organizational processes at a
macro level, the project office teams indulge in the same at the micro level. This is the reason
why finance and project budgeting and cost control have assumed significance because after
all, companies exist to make profits and finance is the lifeblood that determines whether
organizations are profitable or failures.

Finance Manager
Finance manager skills are those that help individuals in this role oversee all aspects of a
company's financial transactions, including budget analysis and calculation of return on
investment (ROI) as well as purchasing and staffing decisions. Finance managers provide
accurate data analysis and strategic propositions to create profit and reduce loss. A finance
manager's skills are built from a wide array of roles and responsibilities.
Finance managers:
 Understand and evaluate cash flow scenarios
 Analyze financial data
 Forecast future earnings and expenses
 Understand and apply contract provisions
 Oversee vendor or government contracts
 Implement contract compliance policy
 Secure financial management systems

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  Apply advanced mathematics
 Use and understand statistical modelling software and spreadsheets

Financial Statement

Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.
Financial statements include:
 Balance sheet
 Income statement
 Cash flow statement.

Investors and financial analysts rely on financial data to analyze the performance of a
company and make predictions about its future direction of the company's stock price. One of
the most important resources of reliable and audited financial data is the annual report, which
contains the firm's financial statements.

The financial statements are used by investors, market analysts, and creditors to evaluate a
company's financial health and earnings potential. The three major financial statement reports
are the balance sheet, income statement, and statement of cash flows.

Balance Sheets
The balance sheet provides an overview of a company's assets, liabilities, and stockholders'
equity as a snapshot in time. The date at the top of the balance sheet tells you when the
snapshot was taken, which is generally the end of the fiscal year.

The Balance Sheet Formula

Assets=(Liabilities + Owner’s Equity)

Income Statements
Unlike the balance sheet, the income statement covers a range of time, which is a year for
annual financial statements and a quarter for quarterly financial statements. The income
statement provides an overview of revenues, expenses, net income and earnings per share. It
usually provides two to three years of data for comparison.

Income Statement Formula and Calculation

Net Income=(Revenue−Expenses)

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 Cash Flow Statement
The cash flow statement (CFS) measures how well a company generates cash to pay its debt
obligations, fund its operating expenses, and fund investments. The cash flow statement
complements the balance sheet and income statement.
ASSIGNMENT

1. Reaction Paper (Essay) about the importance of Financial Management in over-all organization’s
goals. Please include examples and elaborate your answer.
ASSESSMENT

Recitation or Class Participation thru online via Zoom or any instructed by the school
Lecture Analysis
Reaction paper thru Google classroom

Rule: In a self-paced and self-contained online classroom, Rubric is required to guide students how to
perform the task assessments.

Lesson Analysis of reading materials

Critical Analysis ( reaction paper about the reading materials provided) 80%
RUBRICS

Writing Skills (Grammar/Sentence Construction) 20%

With Online discussion/ Face to face class

Note
In the event of online discussion- Presentation skills 30%
Summary (Quizzes and Activities) 20%
Critical Analysis ( Reaction paper about the reading materials provided) 40%
Writing Skills (Grammar /Sentence construction) 10%

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 REFERENCES

https://www.investopedia.com/ask/answers/what-is-finance/

https://www.managementstudyguide.com/finance-functions.htm

https://www.indeed.com/career-advice/resumes-cover-letters/skills-required-for-finance-manager

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