CHAPTER 1:

Introduction to
Financial
Management
 Objectives

1.Define Finance;
2.Describe who are responsible for financial
management within an organization;
3.Describe the primary activities of the financial
manager;
4.Describe how the financial manager help in
achieving the goal of the organization; and
5.Describe the role of financial institutions and 2
“ Beware of little
expenses. A small leak
will sink a great ship.

-Benjamin
Franklin
3
Pablo Perez is a senior high school student. While studying, he works as a part time
merchandiser in one of the supermarkets near his home. He is earning P2,000 per
week. He plans to save up a portion of his earning to help his parents pay his college
tuition fees. After six months, he was able to save P30,000. he contemplating on how
he can still make his savings grow.
One afternoon, after he closed his social media account , he researched on ways on
how he can still make his money earn. He was able to researched three ways: to
deposit his money in a bank, to make his money available for borrowing, and to infuse
his money as an additional capital in their water refilling station business.

If you were Pablo, what would you do with the P30,000 savings for it to grow?
What would you consider in making such a decision?

44
Introduction:
All people need money to live.
While it is true that the love of money is the root of all
evil, the prudent and wise use of money can result in
many good things----- a better life and a more secured
future.

In fact, if you are going to ask yourself why you are in

senior high school now studying? Because you want a
better life.
5
Introduction:
Fast forward, you will find yourself earning your own
money , being financially independent, and making
financial decisions. In making these decisions, it is
important that you consider the financial environment
where a financial system operates.
In the opening case, Pablo can better make wiser
decisions on how he can grow his money if he is familiar
with the financial environment where Individuals,
Institutions, Governments, and businesses acquire,
spend, and manage their financial resources. 6
What is Finance?

▰ In simple terms, finance is a study of how the players

in a financial system acquire, spend, manage, and
make other sound financial decisions concerning
money and other financial resources.
▰ Money is anything generally accepted as a means of
paying goods and services and for paying debts or
liabilities.

7
Three Basic Functions
of Money
▰ As a medium of
exchange.
▰ As a store of value.
▰ As a standard of value.

8
REASONS TO STUDY
FINANCE
1. To be able to manage money or
financial resources.
Economics underscores that a resource
is something that is scarce. As such ,
they have to be managed properly to
maximize their use.
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 REASONS TO STUDY
FINANCE
2. To be able to make sound
economic decisions.
Decisions being made by individuals,
businesses, and governments affect
entire economy.

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 REASONS TO STUDY
FINANCE
3. To be able to arrive at sound
personal and business investment
decisions.
This reason emphasizes that when
individuals and businesses make
investment decisions, they have to do
this with much prudence.
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 REASONS TO STUDY
FINANCE
4. To be able to understand the
career path available to finance
professionals.
Knowing finance entails knowing as
well the job opportunities available to
finance professionals.
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Careers in
Finance
▰ Commerce and
Industry  Bank Teller
 Financial Analyst  Investment
 Cash Management Researcher
Analyst  Insurance Agent
 Capital Expenditures  Real State Agent
Analyst  Stockbroker
 Credit Analyst  Security Analysts
 Loan Analyst
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Careers in
Finance
▰ Government
 Administrative Clerk
 Examiner
▰ Academe
 Lecturer
 Research Assistant
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The Financial
Environment
Understanding business finance requires of the financial
environment.
The financial environment is characterized by its three
interacting areas.
These areas are:
1. Financial Institutions and Markets
2. Investments
3. Financial Management
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 Three Interacting Areas of Financial
Environment
▰ Financial Institutions and Financial Markets
Financial institutions are organizations or
intermediaries that help the financial system operate
efficiently and transfer funds from depositors and
investors to individuals, business, and governments
that seek to spend or invest the funds in tangible
assets.
- These organizations provide financial services by
dealing with the management of money.
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Three Interacting Areas of Financial
Environment

▰ INVESTMENTS
This area focuses on the decisions made by business
and individuals as they choose securities for their
investment portfolios. This involves the sale or
marketing of securities, the analysis of securities, and
the management of investment risks through portfolio
diversification.

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Three Interacting Areas of Financial
Environment

▰ FINANCIAL MANAGEMENT
It involves financial planning , asset management, and
the decisions to increase the value of the stakeholders.
This area is often attributed to business finance
because it deals with decisions concerning cash flows,
Including both inflows and outflows.

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Financial Management in a
Organization
Finance is among the core functions of a business.
Depending on the size of the business, finance is always
headed by a financial manager.
For smaller business, this financial manager may be a
supervisor who is reporting to the business owner.
For bigger business, he/she may be a vice president
reporting to the president.

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Task of a Financial
Manager

▰ To ensure that financial decisions are made with

due regard to prudent use of financial resources
in the hope of increasing stakeholder value.

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Task of a Financial
Manager
▰ There are usually two managers reporting to the vice
president for finance.
▰ They are the treasurer and controller.
▰ The treasurer oversees the traditional functions of
financial analysis such as capital budgeting, short-term
and long-term financing decisions, and asset
management.
▰ On the other hand controller usually manages the
accounting, cost analysis, and tax planning. 21
Thank
You !
22
QUIZ NO.1

I. Identify the following statement, write TRUE if the statement is correct and
FALSE if otherwise.

1. Understanding finance entails the understanding of financial environment.

2. The concepts of finance is only applicable to established businesses.
3. Finance is concerned with how the players in a financial system acquire,
spend, manage, and make other sound financial decisions concerning
money and other financial resources.
4. Money is anything generally accepted as a means of paying for goods
and services.
5. Career opportunities in Finance are limited to commerce and industry and
Government only.
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QUIZ NO.1

II. Enumerate the following questions.

1-3. What are the Three Basic Functions of Money?

4-5. Give at least two reasons why we need to study finance.
6-8. What are the three interacting areas in financial
environment?
9-10. These are the two managers reporting in the vice
president in finance.

III. Essay (5 points)

1-5.) In your own understanding, what is the importance of
studying finance? 24