Business Finance

Introduction to Financial
Management

Grade:12 Quarter III

2nd Semester
 Introduction to Financial Management
CONTENT
The learners demonstrate an understanding of
CONTENT the definition of finance , the activities of the
STANDARDS financial manager, and the financial institutions
and markets
The learners are able to : -define Finance,
-describe who are responsible for financial
management within an organization
-describe the primary activities of financial
PERFORMANCE manager
STANDARDS -describe how the financial manager helps in
achieving the goal of the organization
-escribe the role of financial institutions and
markets
 CONTENT Introduction to Financial Management
The learners..
1. Explain the major role of financial
management and the different
individuals involved - ABM_BF12-IIIa-1
2. Distinguish a financial institution from
financial instrument and financial
market - ABM_BF12-IIIa-2
Learning 3. Enumerate the varied financial
Competencies institutions and their corresponding
services- ABM_BF12-IIIa-3
4. Compare and contrast the varied
financial instruments-ABM_BF12-IIIa-4
5. Explain the flow of funds within an
organization-through and from the
enterprise –and the role of financial
manager- ABM_BF12-IIIa-5
 Content 1: Introduction to financial
management
• Definition of Finance and other related terms
• Review on different forms of business organization
• Goal of the firm and measurement of the shareholder's
wealth

• Finance in the corporate organizational structure

• Major role of financial management and the different
individuals involved
• Difference of financial institution, financial instrument and
financial market
• Financial institutions and their services offered
• Comparison of financial instruments
 Session 1
• Definition of Finance and other related terms
• Review on different forms of business
organization
• Goal of the firm and measurement of the
shareholder's wealth
FINANCE LC 1 to 5
 Finance tasks LC 1

• Allocating available funds

– Determining where to use funds currently
available to the firm
• Acquiring needed funds
– Obtaining funds from the right sources at the right
time
• Utilizing acquired funds
– Using the funds to achieve set goals
 Related terms LC 1

• Budgeting
– Act of estimating revenue and expenses over a period
of time

• Investments
– Come in many forms that will generate income or
appreciate in the future

• Sources of Funds
– Long-term
– Short term
Review….Forms of business
LC 1
organization
 Shareholder Definition LC 1

An individual, group, or organization that owns

one or more shares in a company, and in whose
name the share certificate is issued.
 LC 1

MAIN Objective of a shareholder

WEALTH MAXIMIZATION
 Wealth maximization LC 1

• Wealth maximization is the ability of a

company to increase the market value of its
common stock over time
 Factors that influence market price LC 1

Controllable by Management Uncontrollable External Factors

• profitability, • macroeconomic conditions,
• having a good liquidity and • political stability,
reasonable leverage position, • prospects of the industry where
• dividends, the company operates,
• competent management which • general market sentiment,
affects the company’s operating • flow of foreign funds invested in
efficiency, and the Philippine stock market
• coming up with corporate plans
that improve the business
prospects of the company
Profitability
 Good liquidity and reasonable
leverage position

• Liquidity and leverage refers to the company’s

management of the type and amount of
assets and liabilities that it will hold in the
course of its operations
 Dividends

• Holders of shares receive dividends from a

corporation as returns on their investments in
form of cash or other properties
 Competent management

• Competent managers may have any of the

following attributes 1) visionary 2) decisive 3)
people-oriented, 4) inspiring, 5) innovative, 6)
respected and 7) experienced/seasoned
manager
 Corporate plans that improve the
business prospects
• Let’s take, for example, Company A which is in the business of selling Halo-
halo in Dapitan area (or any other area) for 5 years. Company A is
consistently earning profits and has a positive cash flow. When asked how
Company A sees itself after 5 more years, Company A answered that it
would continue to sell Halo-halo in Dapitan (or any other area).

• On the other hand, Company B sells Buko Juice in Katipunan area (or any
other area different from Company A’s area) for 5 years. Company B is
consistently earning profits and has a positive cash flow. When asked how
Company B sees itself after 5 more years, Company B answered that it has
generated enough cash to expand its business to Cubao area (or any other
area) to take advantage of the growing demand of Buko Juice in Cubao.

• Between Company A and Company B, which would be a better

investment?
 Corporate plans that improve the
business prospects
• Let’s take, for example, Company A which is in the business of selling
Chami in Lucena area (or any other area) for 5 years. Company A is
consistently earning profits and has a positive cash flow. When asked how
Company A sees itself after 5 more years, Company A answered that it
would continue to sell Chami in Lucena (or any other area).

• On the other hand, Company B sells Buko Juice in Lucena area (or any
other area different from Company A’s area) for 5 years. Company B is
consistently earning profits and has a positive cash flow. When asked how
Company B sees itself after 5 more years, Company B answered that it has
generated enough cash to expand its business to other towns in Quezon
area (or any other area) to take advantage of the growing demand of Buko
Juice in Lucena.

• Between Company A and Company B, which would be a better

investment?
 Answer

Company B. Since it has more concrete future

prospects allowing investors to hope for better
revenues and net income.
 External Factors
• These factors influences the general reaction
of investors in making an investment decision.
Its effect is not only to a specific company but
on all companies or a group of companies
under similar circumstances. Such factors are
a result of the environment a company
operates in rather than the decisions of the
company’s management.
 Macroeconomic Conditions
• Changes in employment levels
• Inflation/deflation
• Global crisis
 Market Sentiment
• also called “investor sentiment”
• is the overall attitude of investors toward a
particular security or financial market
– Bullish market sentiment- rising prices
– Bearish market sentiment-falling prices
 Session 2
• The corporate organizational structure
• Role of Financial Management and the
different individuals involved
• Functions of financial manager
 LC 1 & 5
Corporate Organization Structure
 Shareholders LC 1 & 5

• 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 LC 1&5

Board of Directors
President (Chief Executive Officer) LC 1&5

1.Overseeing the operations of a

company and ensuring that the
strategies as approved by the board are
implemented as planned.
2.Performing all areas of management:
planning, organizing, staffing, directing
and controlling.
3.Representing the company in
professional, social and civic activities.
VP for Marketing LC 1&5
VP for Production LC 1 &5
VP for Administration LC 1&5
CFO’s quotes on finance
CFO’s quotes on finance
VP FOR FINANCE (CFO) FUNCTIONS LC 5
 Financing Decision LC 5

• to determine the appropriate capital structure

of the company
Sample Capital Structure LC 5
Investing LC 5
 Operating Decisions LC 5

• . The role of the VP for finance is determining

how to finance working capital accounts such
as accounts receivable and inventories.
 Dividend Policies
• Cash dividends are paid by corporations to
existing shareholders base on their
shareholdings in the company as a return on
their investment but before doing this the
Finance Manager must determine when the
company should declare cash dividends
Role of financial management LC 1

• Financial management deals with decisions that are

supposed to maximize the value of shareholders’
wealth. (Cayanan)

• These decisions will ultimately affect the markets

perception of the company and influence the share
price. The goal of financial management is to maximize
the value of shares of stocks.

• Managers of a corporation are responsible for making

the decisions for the company that would lead towards
shareholders’ wealth maximization.
 SESSION 3

• Introduction of the concept of Financial

System
• Identifying the types of Financial Markets,
Financial Institutions and Financial
Instruments
 Terms in Financial System
• Financial Markets – organized forums in which the
suppliers and users of various types of funds can
make transactions directly
• Financial Institutions – intermediary that channels
the savings of individuals, businesses, and
governments into loans or investments
• Private Placements - the sale of a new security
directly to an investor or group of investors
• Public Offering - The sale of either bonds or stocks to
the general public.
• Financial Instruments – is a real or a virtual document
representing a legal agreement involving some sort-of
monetary value .These can be debt securities like
corporate bonds or equity like shares of stock.
 Terms in Financial System LC 2

• Primary Market: Financial market in which securities

are initially issued; the only market in which the issuer
is directly involved in the transaction.
• Secondary market: Financial market in which
preowned securities (those that are not new issues)
are traded.
• Money market: A financial relationship created
between suppliers and users of short-term funds.
• Capital market: A market that enables suppliers and
users of long-term funds to make transactions
Financial System LC 2 to 5
 Financial Instruments LC 2&4

• Equity Instrument- is any contract that

evidences a residual interest in the assets of
an entity after deducting all liabilities (IAS 32)

• Debt Instrument-have generally have fixed

returns due to fixed interest rates.
 Financial Institutions LC 3

• Commercial Banks
• Insurance Companies
• Mutual Funds
• Pension Funds
• Other Financial Institutions
– e.g. GSIS, SSS
Financial Institutions LC 4
LC 4
End of Chapter 1!