FINANCIAL

MANAGEMEN
T
FAITH COLLEGES
SY 2024-2025
 Definition
A decision- making process concerned with planning,
acquiring and utilizing funds in a manner that achieves
the firm’s desired goals.

Also described as the process for and the analysis of

making financial decisions in the business context.

Also referred to as managerial finance, corporate finance

and business finance.
 Role of Finance in
the Organization
 The CFO is responsible for the accounting system, for
raising any capital the firm needs, for evaluating the
effectiveness of operations in relation to other firms in
the industry, and for evaluating all major investment
decisions, including proposed new plants, stores, and
the like. All of the CFO’s duties are important if the
firm is to maximize shareholder wealth. The
accounting system must provide good information if
the firm is to be run efficiently— management must
know the true costs in order to make good decisions.
Also, the accounting system must provide investors
with accurate and timely information—if investors
don’t trust the reported numbers, they will avoid the
stock and its value won’t be maximized.

This Photo by Unknown Author is licensed under CC BY-SA

 Role of Finance Manager

Analysis and Acquisition of Utilization of

Planning Funds
Impact on Risk and Return Funds
Affect the Market Price of
Common Stock
Lead to Shareholder’s
Wealth Maximization
 Make money and add value for the owners

Maximize the current value per share of

Goal the existing stock or ownership in a

business firm.

The financial manager should best serve

the owners of the business by identifying
goods and services that add value to the
firm because they are desired and valued
in the free market place.
 Types of Financial Decisions

INVESTMENT FINANCING DIVIDEND

DECISIONS DECISIONS DECISIONS
 Investment Decisions
 Those which determine how scarce or limited resources in
terms of funds of the business firms are committed to projects.
 The firm should select only those capital investment proposals
whose net present value is positive and the rate of return
exceeding the marginal cost.
 Should also consider the profitability of each individual
project proposal that will contribute to the overall profitability
of the firm.
 Financing decisions

Assert that the mix of debt and Should consider the cost of financial Should also consider the principle of
equity chosen to finance investments available in different forms and the financial leverage or trading on the
should maximize the value of risks attached to it. equity when selecting capital
investments made. structure decision.
 Dividend decisions

Concerned with the determination of quantum of An optimal dividend distribution policy will lead
profits to be distributed to the owners, the to the maximization of shareholders’ wealth.
frequency of such payments and the amounts to
be retained by the firm.
 The Finance Organization

THE FINANCIAL VP FINANCE CONTROLLER HANDLES TREASURER IS

MANAGEMENT FUNCTION COORDINATES THE COST & FINANCIAL RESPONSIBLE FOR
IS USUALLY ASSOCIATED ACTIVITIES OF THE ACCTG, TAX PAYMENTS & MANAGING THE FIRM’S
WITH A TOP OFFICER OF TREASURER & MGMT INFO SYSTEM. CASH & CREDIT,
THE FIRM, VP FINANCE CONTROLLER. FINANCIAL PLANNING &
OR CFO. CAPEX.
CORPORATE
GOVERNANCE
 a system of rules, policies,
and practices that dictate
how a company's board of
directors manages and
oversees the operations of
a company; Corporate
governance includes
principles of transparency,
accountability, and security.
 Corporate Governance

 Process of monitoring managers and aligning their objectives with

shareholders’ goal.
 In reality, because shareholders are usually inactive, the firm
actually seems to belong to management.
 Managers handle day to day operations, and they know that their
work is mostly unknown to investors.
 Ethical Behavior

FINANCE PROFESSIONALS FIDUCIARY RELATIONSHIPS ULTIMATELY, A FINANCE MANAGER

COMMONLY MANAGE OTHER OFTENTIMES CREATE TEMPTING OWE THE OWNERS/
PEOPLE’S MONEY. OPPORTUNITIES FOR FINANCE SHAREHOLDERS THE VERY BEST
PROFESSIONALS TO MAKE DECISIONS TO PROTECT THEIR
DECISIONS THAT EITHER BENEFIT INTERESTS.
THE CLIENT OR BENEFIT THE
ADVISORS THEMSELVES.
 Ethical behavior includes
honesty, integrity, fairness and
a variety of other positive
traits. Those who have others'
interests in mind when they
make decisions are
displaying ethical behavior.
In the workplace, there might
be a standard for ethics set
throughout the company.
A review of
Basic
Accounting
 Definition of
Accounting
 A service activity. Its function is to provide
quantitative information, primarily financial in
nature about economic entities that is intended to
be useful in making economic decisions.
 Process of identifying, measuring and
communicating economic information to permit
informed judgments and decisions by users of the
information.
 Art of recording, classifying and summarizing in a
significant manner and in terms of money,
transactions & events which are, in part at least of
a financial character and interpreting the results
thereof
FORMS OF BUSINESS ORGANIZATION
Proprietorship

• Owned by a single person who has complete

control over business decisions

Partnership

• Legal arrangement in which two or more persons

agree to contribute capital or services to the
business and divide the profits or losses that may
be derived therefrom
Corporation

• Artificial being created by law and is a legal entity

separate and distinct from its owners.
 Easy of entry and exit
Advantages of a Full ownership and control
Sole Tax savings
Proprietorship
Few government regulations
Disadvantages of a Sole Proprietorship

UNLIMITED LIMITATIONS IN LACK OF

LIABILITY RAISING CONTINUITY
CAPITAL
 Proprietorship
may be an ideal
form of business
organization
The owner is either unable or
when the unwilling to maintain
The anticipated risk isthe necessary
minimum and
following organizational documents
adequately covered and tax
by insurance.
conditions exist: returns of more complicated business
The business does not require extensive
entities.
borrowing.
 Ease of formation

Advantages Additional sources of capital

of a
Partnership Management base

Tax implication
 Unlimited liability

Lack of continuity
Disadvantages
of a
Difficulty of transferring
Partnership ownership
Limitations in raising
capital
Advantages of a Corporation

Limited liability Unlimited life

Ease in
Ability to raise
transferring
capital
ownership
 Time and cost of
Disadvantages formulation
of a Corporation Regulation
Taxes
TYPES OF BUSINESS
OPERATION

 Service Business
 Merchandising
 Manufacturing
ELEMENTS OF FINANCIAL
STATEMENTS
ASSET
LIABILITY
EQUITY
INCOME
EXPENSES
 THE ACCOUNT
ACCOUNT
TITLE
Left Side Right Side
or DEBIT or CREDIT
Side Side
 •ASSETS = LIABILITIES +
THE OWNER’S
ACCOUNTING • EQUITY
EQUATION
 TYPICAL
ACCOUNT
TITLES USED
 ASSETS

STATEMEN
T OF
CURRENT ASSETS
FINANCIAL
POSITION
NON-CURRENT ASSETS
 LIABILITIES

CURRENT LIABILITIES NON-CURRENT

LIABILITIES
 OWNER’S EQUITY
SHAREHOLDERS’
EQUITY

 CAPITAL
 WITHDRAWALS
 RETAINED EARNINGS
INCOME STATEMENT

INCOME EXPENSES
END OF LECTURE
 LEARNING ACTIVITY 1

Research the case of ENRON and on a

piece of paper, write your own analysis on
how it relates to the fundamental
principles of Financial Management
discussed in Lesson 1.