Topic 1 Overview of Financial Accounting and Reporting

An Overview
of Financial
Management
(Nature, purpose, and scope of
financial management)
MA. ROSALINA ARARAO-BESARIO, CPA, Ph.D.

NEGROS ORIENTAL STATE UNIVERSITY
COLLEGE OF BUSINESS ADMINISTRATION
BACHELOR OF SCIENCE IN ACCOUNTANCY
Learning Objectives
1. Discuss the importance of finance in your personal and
professional lives and identify the three primary
business decisions that financial managers make.
2. Explain the role of the financial manager within the firm
and the goal for making financial choices.
3. Explain the four principles of finance that form the
basis of financial management for both businesses and
individuals.
4. Identify the key differences between three major legal
forms of business.
WHAT IS FINANCE?
Finance is the art and science of managing
money
Science? Art?
In some situations, its In some situations,

fundamental concepts, specific models cannot be
principles, theories, and created/used, rather intuition
models can be applied or insight or creativity is used
generally to make decisions to make decisions
WHAT IS FINANCE?
At the personal level, finance is concerned with individuals‟
decisions about:
How much of their earnings they spend
How much they save
How they invest their savings
In a business context, finance involves:
How firms raise money from investors
How firms invest money in to earn profits
How firms decide whether to reinvest profits in the business
or distribute them back to investors.
WHAT IS CORPORATE OR MANAGERIAL FINANCE?
❖ An important area of finance that deals with

The sources of funding,
The capital structure of firms,
The tools and analysis used to allocate financial sources, and
The actions taken to maximize the firm’s value to the
shareholders
❖ Is concerned with the duties of the financial manager working

in a business
WHAT IS CORPORATE OR MANAGERIAL FINANCE?
❖ Helps financial managers administer the financial affairs of all

types of businesses. Tasks include:
Developing a financial plan
Evaluating proposed large expenditures
Raising money to finance the firm’s operations
Extending credit to customer
FINANCE VS ECONOMICS & ACCOUNTING
ECONOMICS ACCOUNTING FINANCE
➢ Provides structure for

➢ Deals with collection ➢ Deals with evaluating
decision making and
suggests that asset’s value is and presentation of accounting statement,
based on its ability to developing additional
financial data and
generate CFs now and in the data, and making
future
measures firm’s decisions based on
➢ Deals with collection and Performance. associated risk and return
presentation of financial data and makes plans for CFs
and measures firm’s ➢ Is backward looking to maintain firm’s solvency.
performance
➢ Deals with evaluating and deals with
accounting statement, historical data. ➢ Is forward looking and
developing additional data, makes analysis and
and making decisions based decisions about future.
on associated risk and return
and makes plans for CFs to
maintain firm’s solvency
➢ May be positive or normative
RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT, ACCOUNTING,
AND ECONOMICS
RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT, ACCOUNTING,
AND ECONOMICS
FINANCE WITHIN THE ORGANIZATION
THE GOALS OF FINANCIAL MANAGEMENT
To ensure adequate returns

to the shareholders and this
To ensure regular and will depend upon the
adequate supply of funds to earning capacity, market
the concern. price of the share,
expectations of the
shareholders. To plan a sound capital
structure so that a balance is
maintained between debt
and equity capital.
To ensure safety on
To ensure optimum funds
investment, i.e. funds should
utilization.
be invested in safe ventures.
SIGNIFICANCE OF FINANCIAL MANAGEMENT
FINANCIAL MANAGEMENT DECISIONS
Working
Net Goods &
Capital
Earnings Services Management
Operating
Activities
Reinvested Investment
Investing Capital
in Producing
Activities Budgeting
Assets
Debt
Payment Debt
Financing Financing
Activities
Distribution Dividends Capital
Equity
Decisions Structure
Financing
FINANCIAL MANAGEMENT DECISIONS
Capital Structure The combination of debt and equity used to finance a firm
Capital budgeting is the making of long-run planning

Capital Budgeting decisions for investments in projects which maximize firm’s
value.
Working Capital Short term Financial Management

Management of current assets & current liabilities
Management Working Capital Management Decisions
Short Term Financing
Short Term Investment
The distribution policy defines:

Distribution The level of cash distributions to shareholders
Decisions The form of the distribution (dividend vs. stock repurchase)
The stability of the distribution
BASIC FORMS OF BUSINESS ORGANIZATION
BASIC FORMS OF BUSINESS ORGANIZATION

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An Overview

MA. ROSALINA ARARAO-BESARIO, CPA, Ph.D.

In some situations, its In some situations,

❖ An important area of finance that deals with

❖ Is concerned with the duties of the financial manager working

❖ Helps financial managers administer the financial affairs of all

➢ Provides structure for

To ensure adequate returns

Capital budgeting is the making of long-run planning

Working Capital Short term Financial Management

The distribution policy defines:

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