Monica Medina FM401 STR FIN MGT

CHAPTER 1: THE ROLE OF ACCOUNTING AND FINANCE

Accounting maybe the language of business but finance is the literature.
People may not know but finance is a valuable tool in business. It is used to
communicate, judge and monitor the results of transactions and daily activities of a
firm. From board room to stores, from executives to front line employees. For a
manager to be efficient, he must know how to make decisions not only concerning
strategic investment decisions but also operational decisions.

In this chapter, the organizational structure of a firm was discussed. Each
positions tasks and activities were also listed. The responsibilities of financial
managers were also presented; from how to interact with co-managers to
developing decisions and to financing sources needed.

Financial managers must participate in improving the companys strategies in
which the firm operates. They must also always remember that its their duty to find
sources to minimize the cost of capital for projects of the firm without sacrificing the
end products or services that the firms offers. Decision makers should also keep in
mind that in every decision they do they must be guided by the goal of maximizing
the returns to the companys shareholders.

But the implications of finance do not stop at the end of the day. We must
remember that many of the financial principles are directly applicable to personal life
as well.

Monica Medina FM401 STR FIN MGT

CHAPTER 2: FINANCIAL STATEMENTS AND CASH FLOWS

We can see the firms historical performance and we can assess their
achievements through their financial statements. This chapter was all about the
three primary financial statements of the firm. Each one was discussed thoroughly
with the use of financial statements of the Hershey Company.

Before going in to the three financial statements, the role of each was
discussed. In income statement, we can see the activities of the company through
measuring its revenues less the expenses. A balance sheet provides a snapshot of
what the firm owns and owes at the specific time. Lastly, the underlying transactions
that cause the cash balance to change are seen in the statement of cash flows.

Throughout the chapter the financial statements were more understood with
the help of the sample financial statements from Hershey. Each account was also
discussed to help the readers understand the terms more. Financial statements are
guided by US GAAP so that it will also be in line with other firms from the same
industry. Information from financial statements is also used for the financial
managers to make better managerial decisions that can help improve the firm not
only for its customers but also for its shareholders.

Monica Medina FM401 STR FIN MGT

CHAPTER 3: TIME AND VALUE

Every finance student must know the techniques used in compound interest
and present value because they will be using it in every important aspects of
business finance and also in other transactions they can encounter in their field.

In this chapter, the time vale of money was discussed thoroughly. The
concept and applications was also included with the formulas that can be used.
There were formulas given for each in which the reader can choose among the
given choices including solving with the use of financial calculators and with the
table at the back of the book.

In solving the examples in class, we only used the simple equations with the
help of the table. We used our calculators, manual and scientific, and the table at the
back since no one of us has those financial calculators but we still have the same
results. Solving may look complicated but when you get used to it and you
familiarize yourself the formulas, youll get by.

Not only in the things mentioned above but anyone who knows the concept
concerning the topic can use it in their personal lives like in loans, investments, etc.

Monica Medina FM401 STR FIN MGT

CHAPTER 4: BUSINESS ORGANIZATION AND TAXES

In US economy, the federal government is often called the most important
shareholder. The counterpart of their federal government in our country is the
Bangko Sentral ng Pilipinas.

The brief history of US income tax was shown in the book. We can also see
the recent collections in their country including tabulated examples to explain the
topic further. We can also see the difference between a corporate tax from a taxable
income. There are two general kinds of income, those are ordinary income and
profits from a sale made.

If you plan to start a business organization, you can choose from sole
proprietorship, partnership, corporation and joint ventures. These different types
have its share of advantages and disadvantages. The tax for each also differs.

We must keep in mind that tax laws are constantly changing in response to
different political and public policy goals. The rules in taxation are complex as well
and this chapter only gave a preview, so to know more you must consult more
references.

Monica Medina FM401 STR FIN MGT

CHAPTER 5: INTEREST RATES AND FIXED RETURN SECURITIES VALUATION

In this chapter, financial system, impacts of monetary and fiscal policy,
determining interest rates were some of the topics tackled.

An important part of a financial managers environment is the financial sector
of the economy which is comprise of financial markets, financial institutions and
financial instruments. Money market is for financial assets and liabilities with
maturities of less than 1 year while capital markets involve transfers for longer
periods. When stocks are sold for the first time, the transaction takes place in a
primary market and the subsequent trading takes place in secondary market. There
are two sources where a firm can obtain financing, ownership funds or funds from
creditors. Some of the risks a firm can face is the default risk and interest rate risk.

There are a lot of developments that can happen in day. Changes that can
affect a firms operations and activities so as a financial manager, you must always
be updated with the financial and economic developments. The daily news from
television and newspaper has regular articles that concerns the developments
mentioned.

Monica Medina FM401 STR FIN MGT

CHAPTER 6: RISK, RETURN, AND EQUITY VALUATION

In valuing a share of stock as perpetuity, there are three variations to be
considered; zero growth, constant growth and supernormal growth. The formulas
and how to solve the mentioned variations were discussed in this chapter. You must
keep in mind to increase your cash flow, grow the business and reduce your
required return.

The tough part of decision making under uncertainty lies in deciding how
much extra return should be required to accept different levels of risk. Historical
returns as well as its underlying risk are important to understand. The principle of
risk-reward is applicable in corporate finance as well.

Before, it was not possible to choose between projects or firms based on their
expected returns in relation to expected risk. The risk of a project is composed of
market risk and idiosyncratic.

A security market line can be used to measure the return required from an
investment in relation to it estimated risk measured by its beta.


Monica Medina FM401 STR FIN MGT

CHAPTER 7: FINANCIAL PERFORMANCE METRICS

In order to enhance an enterprises value, effective planning and control are
needed. There may be different forms of financial plans but the chosen plan must be
related to firms existing strength and weaknesses.

This chapter helps the user on how he can interpret the financial performance
of an organization. He can also use the information to judge whether the financial
performance of the company is good or needs more improvement. The following
topics can also help the manager to set the possible management targets.

When a manager analyzes the financial performance of a business, he
usually starts with the financial statements of the firm. There are different ratios that
are classified into seven categories namely liquidity, activity, leverage, profitability,
market, growth and cost management. No single financial ratio can begin to answer
all the analytical needs needed by its different users.

The chapter developed an analytical foundation by reviewing traditional
financial analysis and financial performance metrics and illustrated competitive
financial analysis and its managerial implications.

Monica Medina FM401 STR FIN MGT

CHAPTER 8: WORKING CAPITAL MANAGEMENT

The chapter dealt with the management of each major type of current asset
and current liabilities. Often organizations have specific departments involved in the
management of working capital. Operating and cash cycles, current assets and
current liabilities were discussed in the chapter.

Cash and marketable securities can be quickly converted into cash with only
small transaction costs and hence can be regarded as a form of backup cash.
Inventories raw materials, work-in process and finished goods are necessary in
most businesses. Short term financing considerations begin with a major policy
question about the relationships among types of assets and the way these assets
are financed. Short term credit is debt originally scheduled for repayment within one
year. The three major sources of short-term credit are trade credit among firms,
loans from commercial banks and commercial paper.

The chapter acquainted the reader with many of the day-to-day operational
decisions and techniques used to successfully manage current assets. The chapter
also illustrated the benefits when a firm has a good working capital management.