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Financial Management 4.

Compare and contrast the roles that a firm’s


treasurer and controller have in the
Overview of Financial Management operation of the firm

D. Related videos/readings to the topics:


This lesson will discuss the history, forms and
functions of money. It will give an overview of how https://www.udemy.com/course/introduction-
the supply and demand facilitates the flow of to-financial-management/
resources in macro economy. It will touch on the https://businessfinanceessentials.pressbooks.co
relationship between interest rate and risk and m/chapter/chapter-1/
introduce the student to the payment system. https://slideplayer.com/slide/6234941/

Note: The insight that you will post on online


Intended Learning Outcomes discussion forum using Learning Management System
Students should be able to meet the following (LMS) will receive additional scores in class
intended learning outcomes: participation.
 Describe “financial management” in terms of the
three major decision areas that confront the Offline Activities (e-Learning/Self-Paced)
financial manager Financial Management - Meaning, Objectives and
 Identify the goal of the firm and understand why Functions
shareholders’ wealth maximization is preferred Meaning of Financial Management
over other goals. Financial Management means planning, organizing,
 Understand the basic responsibilities of financial
staffing, directing and controlling the financial
managers and the differences between a
activities such as procurement and utilization of
“treasurer” and a “controller
funds of the enterprise. It means applying general
 Demonstrate an understanding of corporate
management principles to financial resources of the
governance.
enterprise.
Targets/ Objectives
Scope/Elements
At the end of the lesson, students should be able to:
1. Investment decisions includes investment in
1. Enumerate the three major decision areas fixed assets (called as capital budgeting).
that confront the financial manager Investment in current assets are also a part of
2. Enumerate the functions of a financial investment decisions called as working capital
manager decisions. 
Define the concept of agency relationships and 2. Financial decisions - They relate to the raising
explain how they influence the goal of maximizing of finance from various resources which will
shareholder wealth. depend upon decision on type of source,
period of financing, cost of financing and the
Online Activities (Synchronous/ returns thereby. 
Asynchronous) 3. Dividend decision - The finance manager has
A. Online Discussion via Google Meet to take decision with regards to the net profit
distribution. Net profits are generally divided
You will be directed to attend in a one-hour class into two:
discussion on the “The Overview of Financial 1. Dividend for shareholders- Dividend
Management”. To have access to the Online and the rate of it has to be decided. 
Discussion, refer to this link: ____________________. 2. Retained profits- Amount of retained
profits has to be finalized which will
B. A 45 minute interactive Q & A via Google
depend upon expansion and
Classroom. The students are encouraged to
participate in the interactive Q&A. diversification plans of the
enterprise. 
(For further instructions, refer to your Google
Classroom and see the schedule of activities Objectives of Financial Management
for this module)
The financial management is generally concerned
C. Learning Guide Questions: with procurement, allocation and control of financial
resources of a concern. The objectives can be- 
1. What is Financial Management all about?
2. What are the three major functions of the 1. To ensure regular and adequate supply of
financial manager? How are they related? funds to the concern. 
3. What is corporate governance? What role
2. To ensure adequate returns to the
does a corporation’s board of directors
shareholders which will depend upon the
play in corporate governance?
earning capacity, market price of the share,
expectations of the shareholders? 
3. To ensure optimum funds utilization. Once liabilities, maintenance of enough stock,
the funds are procured, they should be purchase of raw materials, etc. 
utilized in maximum possible way at least e. Financial controls: The finance manager has
cost.  not only to plan, procure and utilize the funds
4. To ensure safety on investment, i.e, funds but he also has to exercise control over
should be invested in safe ventures so that finances. This can be done through many
adequate rate of return can be achieved.  techniques like ratio analysis, financial
5. To plan a sound capital structure-There forecasting, cost and profit control, etc. 
should be sound and fair composition of
capital so that a balance is maintained Who is the corporate Financial Manager?
between debt and equity capital. 

Functions of Financial Management

1. Estimation of capital requirements: A finance


manager has to make estimation with regards
to capital requirements of the company. This
will depend upon expected costs and profits
and future programs and policies of a Source: https://aicody.com/articles/corporate-
concern. Estimations have to be made in an finance/who-is-the-corporate-financial-manager-
adequate manner which increases earning 91a1f410c3712253
capacity of enterprise. 
2. Determination of capital composition: Once
the estimation have been made, the capital Engaging Activity: Arrange the following
structure have to be decided. This involves duties/responsibilities to either the Treasurer or the
short- term and long- term debt equity Controller. Write your answers on the table provided.
analysis. This will depend upon the
proportion of equity capital a company is
 Financial Planning
possessing and additional funds which have
to be raised from outside parties.   Dividend disbursement and share
3. Choice of sources of funds: For additional repurchases
funds to be procured, a company has many  Cost Accounting
choices like-   Cost Management
1. Issue of shares and debentures   Credit Management
2. Loans to be taken from banks and  Preparing Budgets
financial institutions   Preparing Financial Statements
3. Public deposits to be drawn like in  Capital Budgeting
form of bonds.   Cash management
4. Choice of factor will depend on  Preparing forecasts
relative merits and demerits of each  Financial Analysis and Planning
source and period of financing. 
b. Investment of funds: The finance manager Goal of The Firm
has to decide to allocate funds into profitable In finance, the goal of the firm is always
ventures so that there is safety on investment described as "maximization of shareholders' wealth".
and regular returns is possible. 
c. Disposal of surplus: The net profits decision Profit Maximization –
has to be made by the finance manager. This
is always used as a goal of the firm in
can be done in two ways: 
microeconomics. Focus on short term goal to be
1. Dividend declaration - It includes
achieved within a year. It stresses on the efficient use
identifying the rate of dividends and
other benefits like bonus.  of capital resources. In order to maximize profit, the
2. Retained profits - The volume has to financial manager will implement actions that would
be decided which will depend upon result in maximum profits without considering the
expansional, innovational, consequence of his actions towards the company's
diversification plans of the company.  future performance.
d. Management of cash: Finance manager has to
make decisions with regards to cash Drawbacks of Profit Maximization
management. Cash is required for many - Profit maximization is a short-term concept.
purposes like payment of wages and salaries, - Profit maximization does not consider the timing of
payment of electricity and water bills, returns.
payment to creditors, meeting current -Profit maximization ignores risk.
of directors themselves; and, third, the top executive
officers led by the chief executive officer (CEO).

The board of directors – the critical link


Maximization of Shareholders' Wealth
between shareholders and managers – is potentially
the most effective instrument of good governance.
The goal is to maximize the shareholders' The oversight of the company is ultimately their
wealth for whom it is being operated. It being responsibility. The board, when operating properly,
measured by the share price of the stock, which in is also an independent check on corporate
turn is based on the timing of returns, the amount of management to ensure that management acts in the
the returns and the risk or uncertainty of the returns. shareholders’ best interests.

The Role of the Board of Directors


It also means maximizing the total market value
of the existing shareholders' common stock. All  Sets company-wide policy and advises the CEO
financial decisions will affect the achievement of this and other senior executives, who manage the
goal. Shareholders' wealth maximization can be company’s day-to-day activities.
achieved by considering the present and potential  Oversee operating plans, capital budgets, and the
future earnings per share, timing of returns, dividend company’s financial reports to common
shareholders
policy and other factors that affect the market price
of the company's stock. Performance Tasks

Agency Relationships PT 1 Review Questions

 An agency relationship exists whenever a Directions: Answer the following questions.


principal hires an agent to act on their behalf. 1. If I have no intention of becoming a
 Within a corporation, agency relationships financial manager, why do I need to
exist between: understand financial management?
o Shareholders and managers 2. Explain why judging the efficiency of any
o Shareholders and creditors financial decision requires the existence
of a goal.
Agency problems 3. How does the notion of risk and reward
 Problems that arise because of conflicts of govern the behavior of financial
interests managers?
 Stockholders vs Managers 4. Compare and contrast the roles that a
- what managers want does not always align firm’s treasurer and controller have in the
with what the stockholders want - some operation of the firm
mechanisms used to motivate managers to
follow stockholders' best interest: PT 2 Research Activity
o managerial compensation
o direct intervention by shareholders 1. Search for a current article concerning
o threat of firing Corporate Governance. Prepare a
summary of the article guided by the
o threat of takeover
following questions:
 Shareholders versus CREDITORS
o Shareholders (through managers)
 Does the article display an agency
could take actions to maximize stock problem? If yes, expound on how the
price that are detrimental to problem occurred and if there was none,
creditors. what was the issue described in the
o In the long run, such actions will raise article?
the cost of debt and ultimately lower
stock price.  How was the problem resolved? If it is still
ongoing, what recommendations would
Corporate Governance you give if you were the financial manager
or Board of Director of the Company?
Corporate governance refers to the system by
which corporations are managed and controlled. It
encompasses the relationships among a company’s
shareholders, board of directors, and senior
management. These relationships provide the
framework within which corporate objectives are set
and performance is monitored. Three categories of
individuals are, thus, key to corporate governance
success: first, the common shareholders, who elect
the board of directors; second, the company’s board

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