Introduction in Financial Management Students' Copy

7/28/2019 Introduction in Financial Management Students' Copy

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Introduction inFinancialManagementFIN131, TUA

Prof. Jephte O. Munez,

CPA, CPV, PREB, MBA, MSF


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FINANCIAL MANAGEMENT It is the process of planning, organizing,

leading and controlling decisions in order

to maximize owners/ owners wealth.


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GOALS OF CORPORATEFINANCE

Shareholder Wealth Maximization

Profit Maximization

Managerial reward maximization

Behavioral goals

Social Responsibility


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Profit Maximization versusShareholders Wealth Maximization

Goal Objective Advantages Disadvantages

Profitmaximization

Large profits Easy to calculateprofits

Emphasizes theshort term

Easy todetermine thelink betweenfinancialdecisions andprofits

Ignores the risk oruncertainty

Ignores thetiming of returns

Requiresimmediateresources


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Profit Maximization versusShareholder Wealth Maximization

Goal Objective Advantages Disadvantages

Stockholder WealthMaximization

Highest marketvalue of common

stock

Emphasizes the longterm

Offers no clearrelationship

between financialdecisions and stockprice

Recognizes risk oruncertainty

Can lead tomanagementanxiety andfrustration

Recognizes the

timing of returns

Can promote

aggressive andcreativeaccountingpractices

Considersshareholders return


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Risk

The variability of expected returns (sales,earnings and cash flow) and is the

probability that a financial problem willaffect the companys operationalperformance or financial position.


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Forms of Risk

Economic risk

Political uncertainties

Industry problems


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Risk Analysis

Is the process of measuring and analyzingthe risk associated with financial and

investment decisions. The rate of return in relation to the degree

of risk involved.

Return is the reward for investing, consists ofcurrent income, in the form of either

periodic cash payments or capital gain (orloss) from appreciation (or depreciation) inmarket value.


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Time Value of Money Todays dollar (peso) is not the same as

tomorrows dollar (peso) A dollar (peso today

is worth more than a dollar (pesos to bereceived later because you can invest thatdollar (peso) for a return and have more thana dollar (peso) at the specified later date.

Furthermore, receiving a dollar (peso) in the

future has uncertainty attached to it; inflationmight make the dollar (peso) received at alater time worth less in buying power.


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Time Value of Money

Compoundingdetermining the futurevalue of a projected cash inflows.

Discountingdetermining the presentvalue of future cash flows associated withlong-term projects; the discounted valueof receiving future cash flows from a

proposal is an important consideration.


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Importance of Finance Financial knowledge aids in planning, problem-

solving and decision is making. Financial and accounting knowledge is important

in order to understand the financial reportsprepared by other segments of the organization.

Finance allows better communication amongdepartments.

Knowledge of forecasting and capital budgeting(selecting the most profitable project among long-

term alternatives) is essential. Financial knowledge is critical in a wide number of

areas, such as, financing, financial statementanalysis, capital investment decisions.


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Scope and Role of Finance

Language and decision making offinance

Responsibilities of Financial Managers

Relationship between accounting andfinance


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Finance involves interrelatedfunctions

Obtaining funds

Using funds

Monitoring performance Solving current and prospective problems

Product pricing and planning

Variance analysis (comparing actual to budgetfigures)

Asset management Optimize rate of return

Financial strengths and weaknesses of businesses


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What do Financial ManagersDo?

Financial analysis and planning

Making investment decisions

Making financing and capital structuredecisions

Managing financial resources

Managing risks


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Financial Manager affects

Shareholders WealthMaximization

Current and future Earnings Per Share(EPS)

Timing, duration and risk of earnings

Dividend policy

Manner of Financing


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FUNCTIONS OF FINANCIALMANAGER

Planning

Provision of Capital

Administration of Funds Accounting and Control

Protection of Assets

Tax Administration

Investor Relations Evaluation and Consulting

Management Information Systems

Source: Financial Executives Institute


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FUNCTIONS OF FINANCIALMANAGER - Planning

Long and short-range financial andcorporate planning

Budgeting for operations and capitalexpenditures

Evaluating performance

Pricing policies and sales forecasting

Analyzing economic factors

Appraising acquisitions and divestment



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FUNCTIONS OF FINANCIALMANAGERProvision of Capital

Short-term sources: cost andarrangement

Long-term sources: cost andarrangements

Internal generation



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FUNCTIONS OF FINANCIAL MANAGERAdministration of Funds

Cash Management

Banking arrangements

Receipt, custody and disbursement ofcompanys securities and monies

Credit and collection Management

Pension monies Management Investment portfolio Management



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FUNCTIONS OF FINANCIAL MANAGERAccounting and Control

Establishing accounting policies

Developing and reporting accounting data

Cost accounting Internal Auditing

System and procedures

Government reporting

Reporting and interpreting results of

operations to management Comparing performance with operating

plans and standards



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FUNCTIONS OF FINANCIALMANAGERProtection of Assets

Providing for Insurance

Establishing sound internal controls



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FUNCTIONS OF FINANCIALMANAGERTax Administration

Establishing tax policies and procedures

Preparing tax reports

Tax planning



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FUNCTIONS OF FINANCIALMANAGERInvestor Relations

Maintaining liaison with the investmentcommunity

Counselling with analystpublic financialinformation



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FUNCTIONS OF FINANCIAL MANAGEREvaluation and Consulting

Consulting with and advising othercorporate executives on company

policies, operations and objectives andtheir effectiveness.



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FUNCTIONS OF FINANCIAL MANAGERManagement Information Systems

Development and use of computerizedfacilities

Development and use of managementinformation systems

Development and use of systems andprocedures



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Responsibilities

Controller Accounting

Reporting financial information Custody of records

Interpreting financial data

Budgeting

Controlling operations

Appraising results and makingrecommendations

Preparing taxes

Managing assets Internal auditing

Protecting assets

Reporting to government bodies

Payroll

Treasurer Obtaining financing

Maintaining banking relationship Investing funds

Investor relations

Managing cash

Insuring assets

Fostering relationships with creditorsand investors

Appraising credit and collecting

funds Deciding on the financing mix

Disbursing dividends

Managing pension funds

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Introduction in Financial Management Students' Copy