LEARNING ACTIVITY SHEET

Grade Level/ Grade 12 – Business Finance Quarter 1

Subject Week 2

Topic THE FLOW OF FUND AND THE ROLE OF THE Competency 3

FINANCIAL MANAGER

MELC Explain the flow of funds within an organization – Duration 2 hours

through and from the enterprise – and the role of the
financial manager

Specific • Identify the primary activities of the financial Score

Objectives manager.
• Describe the flow of funds within the organization,
and through and from the enterprise.

I. Let’s Know

In our previous lesson, we discussed the role of financial management, the different individuals
involved, and financial institution. Now let us discuss further the flow of funds within the
organization and the role of the financial manager.

The finance officer performs an essential position in the business organization. He or she acts
as the traffic officer to almost all transaction that involves monetary considerations. He or she is
anticipated to be the shock absorber for budgetary requests and requirements of other department
or division of the business. The finance officer must maximize wealth and profit for the company
and its shareholders. The following activities will help the financial manager perform its duty in full
capacity.

The Four Primary Role of the Financial Manager

1 Financing decisions – it gives with elevating or acquiring funds from the outside sources and
not from the ordinary effects of the business operation. In brief, financing decisions are made when
there is a need for the company to borrow money.

The organization can improve cash from the following sources like operations, investors or lenders,
and owners. Funds coming from the operations are internally generated cash. In maximum
instances, any remaining amount after dividend distribution is added to the working capital of the
organization or business. Funds that generated from the outside sources such as investors,
lenders, and company owners are the result of the financing activities of the organization. It is the
responsibility of the finance officer to look for funds from outside sources in the event that the
organization or company money is not enough to cover the expenditures. In cases where the
organization need to borrow money from the outside sources, the finance officer needs to evaluate
and check the cost of borrowing funds that includes the interest that the company needs to pay.

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2. Operating decisions – it deals with the day to day operation of the company. It is the role of
the VP for finance to determine how to finance working capital accounts such as accounts
receivable, and inventories. It is then the company’s choice whether they will finance the working
capital needs by long term or short-term sources.

The distinction between short term and long-term sources:

Short term sources – It is payable in a maximum of 12 months. This consists of short-term

loans with banks and supplier’s credit. Commonly, short term sources pose a trade-off
among profitability and liquidity risk.

Long term sources – It matures in longer periods. The lenders will expect more risk and will
be giving a higher interest rate. The long-term sources, allows the company to have more
time to accumulate cash to pay off the obligation in the future.

3. Investment Decisions – It deals with choosing small and large projects with several
opportunities. Every project is evaluated in terms of return of investment and expected cash flows.
Making an erroneous investment decision can lead to the downfall of the company.

The two types of investments

Short term investment – It is held for a short period of time. Investment held for this length
of time includes single stocks, some fixed- income products, and some currencies.
Investing in a short-term investment is risky because the return is near impossible to predict.
Long term investment – It is held for many years or even decades. The return of
investment can only be expected to realize over a long stretch of time. The finance officer
should consider capital budgeting analysis. Long term investment has a higher chance of
making the company’s’ money, it is because the longer they invest, the less likely the
company will be going to lose money.

4. Dividend Policies – The amount to be paid out by the company to its shareholders. It is the role
of the financial manager to determine when the company should declare cash dividends to its
shareholders. The company needs to decide on what to do with its profit, so they can either retain
it in the company or they can distribute the money to the shareholders in the form of dividends.

The company can declare cash dividends under two conditions

a) The company must have enough retained earnings, and
b) Must have cash.

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 THE FLOW OF FUNDS WITHIN THE ORGANIZATION

In the previous lesson, we already discuss the different types of Financial Markets,
Financial Institutions and Financial instruments. The flow of funds within the organization is greatly
connected with the three institutions. Now let’s discuss further on how these three are connected
with the flow of funds in an organization.

Financial
Institutions

(X) (Y)
Savers/supplier of Private Placement Users/Demanders
Funds of Funds

Financial Markets

Source: Business FinanceTeaching Guides.CHED

Flow of funds
Flow of securities/notes/bonds/debt instruments

If X is aware that Y is in need of funds, or if Y is aware that X is willing to invest funds, X

and Y might agree to make a Private Placement.
However, if that information is unknown to them, X and Y can visit a Financial Market which
is an organized forum that would let X, together with other suppliers of funds, and Y, together with
other users of funds, meet and make transactions. Once X and Y have met in the Financial Market,
they are able to now comply with private placement.
If X and Y do no longer need to make an effort to find counterparty in the Financial Markets,
X and Y may proceed to a Financial Institution. A Financial Institution will get hold of X’s supply of
funds and suit it with Y’s demand of funds. Unlike the Financial Markets have been, X and Y is
aware of to whom the fund went and from whom the funds came, Financial Institutions function as
a middleman to the suppliers and users of funds.

The black solid line represents the flow of cash/funds, while the light/blue color line
represents the flow of financial instruments that represents obligations to transfer cash or other
assets in the future. Transaction between suppliers and users may be made through verbal or
written agreement. The transfer of funds from one party to another is done through Financial
Instruments. The sale of the new securities to an investor or group of investors is done in the
Private Placement

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Financial Markets - an organized forum in which the suppliers and users of various type of funds
can make the transaction directly. The user of funds can now agree to make a private placement.
A private placement is the sale of new security directly to an investor or to a group of investors. In
the event supplier and users do not want to try to find counterparty in the Financial Markets, they
can go to Financial Institutions.

2 CLASSIFICATIONS OF FINANCIAL MARKETS

1. PRIMARY MARKET – A financial market which securities are initially issued and its
issuer is directly involved in the transaction
2. SECONDARY MARKET – A financial market in which those preowned securities
that were not issued are being traded.

Financial Institutions - serve as an intermediary to the suppliers and users of funds. A financial
institution can actively participate in the financial market as both suppliers and users of funds. The
transaction can be done by verbal agreement or written agreement.
Financial Instruments - with the increasing need for security in performing the obligations from
these transactions, the transfer of funds from one party to another are done through Financial
Instruments. Financial instruments are assets that can be traded; it can be in a form of cash,
contract, checks, and ownership of an entity

THE FLOW OF FUNDS THROUGH AND FROM THE ENTERPRISE

Commercial Banks
Deposit and other
Depository Institutions

Individual ------
Investors

Mutual Funds
Purchase of Shares

Enterprise

Premiums /Firms
Policyholders - -------------- Insurance Company

Employees Employee
and ---------- Pension Funds
Employers and Employer
Contribution

Source: Business FinanceTeaching Guides.CHED

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 The figure above shows the flow of funds through and from the enterprises or firms as
Gitman and Zutter, 2012 describe it. The Commercial bank used the deposited funds to
provide commercial loans to firms or personal loans to individuals. Insurance companies
pull the payment made by individuals or company in the form of (life, property and casualty,
health and protection) and invest the proceeds into various securities until such time that
the funds are needed to pay off the policyholders. Mutual funds are governed by
investment companies which permit the small investors the benefits of investing in a
diversified portfolio of securities managed by the professional investment managers. A
pension fund is a financial institution that acquires funds from personnel and makes
investments the proceeds on their behalf.

II. Let’s Perform & Practice

Instruction: Write True if the statement is correct, False if the statement is wrong.

____1. The decision of borrowing additional funds is a financing decision of a finance officer.
____2. The day to day activities of the business is an operating function of the finance officer.
____3. The financial manager selects the one that is expected to result in the highest monetary
return as part of his/her operating decisions function.
____4. The financial market is said to be intermediaries that channel the savings of individuals,
businesses, and government into loans and investment.
____5. Choosing investment such as small or large projects is not part of the function of the
financial manager.

III. Let’s Connect / Let’s Analyze

Instruction: Answer the question and support your answer by citing examples.

Why do you think wealth maximization has to be the prime importance goal of the Financial
Manager?

RUBRIC

FOCUS CONTENT ORGANIZATION

4 Distinct and sharp point Substantial, specific and Sophisticated
made about the topic illustrative content arrangement of idea
demonstrating a robust idea
3 Apparent point made about Functional arrangement of Generic use of ideas
the topic content that sustains a logical utilized in words and
order with some evidence of sentences in creating the
transitions essay
2 No obvious point however Limited content material with Confused or inconsistent
shows evidence of a inadequate explanation arrangement of content
specific topic thoughts
1 Minimal evidence of the Minimal and superficial Minimal control of the
topic content content arrangement

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IV. Let’s Answer
Instruction: Choose the letter of the correct answer.

1. It deals with the day to day operation of the company that the Finance Manager needs to
address.
A. Operating decisions
B. Financing decisions
C. Investment decisions
D. Business decisions

2. It serves as intermediary to the suppliers and the users of funds in the organization.
A. Financial Market
B. Financial Institutions
C. Financial Instrument
D. Financial Group

3. It is an organized forum where suppliers and users of various funds can make the transaction
directly.
A. Financial Instruments
B. Financial Bonds
C. Financial Markets
D. Financial Institutions

4. A decision that a financial manager needs make when there is a need for the company to
borrow money?
A. Operating decisions
B. Financing decisions
C. Investment decisions
D. Personal decisions

5. Deals with choosing better opportunities may it small or large projects that will generate a
better return of investment?
A. Business decisions
B. Operating decisions
C. Investment decisions
D. Financing decisions

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IV. Let’s Explore / Let’s Create

1. Search on the internet a well-known Chief Financial Officer/Manager or the Vice President for
finance of a business company:

➢ You are going to enumerate the roles and function of the Financial Manager.
➢ The contribution of the Financial Manager / VP for finance to the company
➢ The strategies and financial decisions made in the company

As a finance student, what do you think is the biggest contribution of the chosen Financial Manager
to the success of the company? What qualities do you think will make a valuable Financial Manager
in the future?

2. Explain the flow of funds within an organization, and through and from the enterprise.

RUBRICS
SCORE 4 3 2 1
MAIN IDEA Clearly gives the There is the Vague sense of the No main
main concept and main idea main idea. idea
support it at some supported
stage in the throughout most
assignment of the
assignment
CONTENT The topic is well The subject is The idea is present Content
presented, well presented, but the content isn’t isn’t sound.
developed, and however, lacks sound and solid.
supported with evidence and Only a few pieces
specific evidence facts evidence were
and facts. presented
ORGANIZATION All paragraphs Most Some paragraphs The
have clear ideas paragraphs have clear ideas paragraphs
with smooth have clear ideas but transitions are lack clear
transitions but lack good weak. ideas.
transitions
FOCUS The purpose is Not clearly Shows limited No
clear. stated the aim of awareness of the awareness
the discussion purpose of the
discussion

Writer Editor
ELFE M. AU QUENNIE GUMALAWE
Teacher III Master Teacher II
Daniel R. Aguinaldo National High School Crossing Bayabas National High School

Evaluator
MAY ANN V. NABLE
Teacher III
Daniel R. Aguinaldo National High School

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References:
Aduana, Nick “Business Finance”. (2017, Aduana Nick).27 -39
Cecchetti, Stephen G. Money, “Banking and Financial Markets”, 2nd Edition. 2010, 177-78
Gitman, Lawrence J.” Principles of Financial Management”. New York: Pearson 2014, 85-109
Melicher, Ronald W. and Norton,Edgar A. Introduction to Finance, Markets, Investments and
Financial Management, 14th Edition. Canada: McGraw-Hill Ryerson Higher Education,
2014,210-255

ANSWER KEY

II. Let’s Perform & Practice

1. T 2. T 3.F 4.F 5. T

III. Let’s Connect / Let’s Analyze

➢ The following should be checked in their answers

1. The stand of the student regarding the importance of wealth or profit maximization as the
most vital function of the financial manager.
2. The student must be able to cite a reason for his/her stand.
3. The clarity of the points that the students want to convey in his/her answer.

IV. Let’s ANSWER

1. A 2. B 3.C 4.B 5. C

V. Let’s Explore / Let’s Create

➢ I. The following should be checked in their answers

1. The company name

2. The company Chief Financial Manager / VP for Finance profile
3. The roles and functions of a Financial Manager
4. The contribution of the Financial Manager to the company’s success
5. The point of view of the student on the biggest contribution of the Financial Manager to the
company
6. The point of view of the student in becoming a valuable Financial Manager in the future.

➢ II. The content of the answer must include

1. Identify the financial institutions and its functions.

2. Present the flow from institution to the enterprise/firms.