Module 1

Introduction to Financial
Management
Definition of Finance
Finance can be defined as the science and art of managing money. (Gitman
& Zutter, 2012)
It is derived from a Latin word “finer”,meaning “to pay” or “to end.” When
a person pays his bill, the financial matter is ended.
According to Webster, finance may be defined as a noun and a verb.
As a noun, finance means management of money.
As a verb, it means to provide capital for a person or enterprise.
Shetty, et al(1995) viewed finance as the operational or practical side of
economics, the practical science of the production and distribution of
wealth.
Saldana defined finance as the efficient allocation of scarce resources. He
added that finance is concerned with identifying, evaluating, and managing
sources and use of cash in order to increase the value of the business
enterprise or its present owners.
Medina (2007) defined finance as the study of the acquisition and
investment of cash for the purpose of enhancing value and wealth.
Finance therefore, is the FUNCTION of:
1.allocating available funds;
2.acquiring needed funds; and
3.utilizing these funds to achieve set goals.
Why study FINANCE?
Areas of Marketing:
Budgeting, marketing research, marketing financial products
Areas of Accounting:
Dual accounting and finance function, preparation of financial
statements
Areas of Management:
Strategic thinking, job performance, profitability
Areas of Personal finance:
Budgeting, retirement planning, college planning, day-to-day cash flow
issues
Basic Areas of FINANCE
1. Corporate/ Business Finance
 Deals with financing business firms or commercial use, the goal
which is to make profit.
2. Investments
 Work with financial assets such as stocks and bonds Value of
financial assets, risk versus return, and asset allocation
3. Financial Institutions
 Companies that specialize in financial matters;
Banks – commercial and investment, credit unions, savings and l loans
Insurance companies
Brokerage firms
4. International Finance
 it may allow you to work in other countries or at least travel on a
regular basis
 needs to be familiar with exchange rates and political risks
 needs to understand the customs of other countries; speaking a
foreign language fluently is also helpful
Concepts and Functions of Business Finance
Finance has been defined as the “art and science of managing
money”. Business transactions affect the financial measures of a
company therefore, business finance can be defined as the art and
science of managing the financial resources of a business.
Functions of Business Finance
a. Allocation of financial resources

Based with a company’s financial objectives and standards, projects
or activities and operations are carefully planned, evaluated based on
certain criteria, and subsequently ranked for the allocation of financial
resources.
The objective is to be assured that funds are channeled to activities
that are considered profitable and will increase the value of the business
and company costs and risks are minimized.
b. Procurement of funds
Capital must be available at the least cost when it is needed. The
procurement function requires awareness of the different sources of
funds and the costs involved.
Cost of capital varies with the sources. On borrowed funds it is in the
form of financing charges(interest, commissions, and service charges)
and on capital contributed by owners or stockholders, the corresponding
cost is in the form of dividends or shares in profit.
c. Efficient and Effective Utilization of Financial
Resources
Efficient utilization of financial resources refers to their economical
use. Financial resources are actually being used for what they have been
intended.
Effective utilization of financial resources refers to their use towards
the attainment of the predetermined objectives. This requires periodic
review of operations to determine if the plans are happening accordingly
Discuss
1. What is the role of finance in the business world.
2. Why is the study of finance important?

Financial Management
• otherwise called managerial finance.
• deals with the decisions that are supposed to maximize the value of
shareholders’ wealth.(Cayanan)
• concerned with the allocation, procurement or acquisition and
utilization of financial resources.
• financial manager is part of a management team whose ultimate goal
is to maximize shareholders’ wealth. • the person in charge of the
finance function is called the Director of Finance, Vice-President for
Finance, or Chief Financial Officer.
Roles of Each Position
1. Shareholders- elect the Board of Directors
(BOD). Each shareholder has an equal one
voting right as holder of ordinary shares.
2. Board of Directors- highest policy making body
in a corporation. The board has primary
responsibility to ensure that the corporation is
operating to serve the best interest of the
stockholders.
3. President (Chief Executive Officer)- roles may
vary from one company to another. Among the
responsibilities are:
- overseeing the operations of a company and ensuring
that the strategies are approved by the board are
implemented as planned;
- performing all areas of management: planning,
organizing, staffing, directing, and controlling; and
- representing the company in professional, social, and
civic activities.
4. Vice-President for Marketing- Among the
- formulating marketing strategies and plans; -
directing and coordinating company sales; -
performing market and competitor analysis; -
analyzing and evaluating the effectiveness and cost of
marketing methods applied.
- conducting or directing research that will allow
the company identify new marketing
opportunities, e.g. variants of the existing
products/services already offered in the market;
and
- - promoting good relationships with customers
and distributors ,(Cayanan, 2015).
5. Vice-President for Production- among the
- ensuring production meets customers’ demand;
- identifying production technology/process that
minimizes production cost and make the company’s
costs competitive;
- coming up with a production plan that minimizes the
utilization of the company’s production facilities; and
- identifying adequate and cheap raw material suppliers,
(Cayanan, 2015).
6. Vice-President for Administration- among the
- coordinating the functions of administration, finance and
marketing departments;
- assisting other departments in hiring employees;
- providing assistance in payroll preparation, payment of
vendors, and collection of receivables; and
- determining the location and the maximum
amount of office space needed by the company, identifying
means, processes, or systems that will minimize the operating
costs of the company, ( Cayanan, 2015).
7. Vice-President for Finance- the functions are:
a. financing- role is to determine the appropriate
capital structure of the company.
Capital structure refers to how much of your total
assets is financed by debt and how much is
financed by equity.
b. investing
Short term investments include:
- planning for expected excess in cash using financial
planning tools such as budgeting and forecasting.
- choosing which type of investment should it invest
that would secure best profits.
- Long term investments:
Prepare a capital budgeting analysis to determine if the
long term investment will be profitable
c. operating decision- deal with the daily operations
of the company. Determines how to finance working
capital accounts such as accounts receivable and
inventories.
d. dividend policies- these determine when the
company should declare cash dividends.
Cash dividends are paid by corporations to existing
shareholders based on their shareholdings in the
company as a return of their investment once
declared and approved by the Board of Directors.
Finance functions are usually divided between the
controller and treasurer.
Controller ( internal finance functions) Treasurer (external finance functions)
Planning for control which includes budgeting. Determination of financial requirements and
procurement of funds
Reporting and interpreting results of operations and Cash management, banking, custody of funds and
system installation foreign exchange problems
Tax administration and government reporting Corporate investments
Protection of assets Credit and collections

Economic Appraisal Insurance and Employee benefits
Identification
Determine what is being described in the following
sentences. Write your answers in your notebook.
1. What is the primary goal of the financial

manager?
2. Who usually oversees tax administration and
government reporting?
3. The highest policy making body in the
corporation.
4. Who elects the board of directors?
5. Who represents the company in professional,
social and civic activities?
6. Whose finance function is responsible for
foreign exchange problems?
7. It deals with decisions that are suppose to
maximize the shareholders’ wealth.
8. What do you call a person who is in charge
of finance function?
9. It refers to how much of your total assets is
financed by debt and how much is financed by
equity.

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Introduction to Financial

a. Allocation of financial resources

2. Why is the study of finance important?

Tax administration and government reporting Corporate investments

Protection of assets Credit and collections

1. What is the primary goal of the financial

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