Financial Management: Lesson 1.1

Lesson 1.
Financial Management
Business Finance
Accountancy, Business, and Management
1
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2
As a student, what are your
daily financial activities?
How do you manage your
finances?
3
What are your
personal
goals? Is
finance
important in
achieving
these goals?
4
Like individuals,
businesses also
need to
manage their
finances to
achieve their
goals.
5
Quick Look
Personal Financial Goals
Healthy financial habits will contribute to your success and prosperity

in life. It begins with identifying your personal financial goals.
● Examples of personal financial goals:
○ saving a particular amount of money within a time frame
○ reducing your expenses by a certain percentage
6
Quick Look
Personal financial goals should be clear and achievable so that you

can figure out the strategies and activities that you need to do and
perform. Some people seek help from financial advisors to help them
plan, allocate, invest, and monitor their money.
7
Quick Look
In the same way, companies employ financial managers to manage

and control their funds. These people are instrumental in identifying
and executing business strategies to achieve their goals.
8
Quick Look
Questions to Ponder
1. What are your personal financial goals for this year?
2. Try to talk to a financial expert or read articles that provide
financial advice. What are the activities that you need to do and
practice to achieve your financial goals?
3. Why do you think it is important to consult experts such as
financial advisors and financial managers in setting and achieving
financial goals?
9
Learning
Competency
This activity aims to target the following DepEd competency:

Explain the major role of financial management and the
different individuals involved (ABM_BF12-IIIa-1).
10
Learning Objectives
In this lesson, you should be able to do the following:

● Explain financial management and its purpose.
● Discuss the financial systems and its components.
● Identify the key people involved in financial management
and their roles.
● Evaluate the importance of financial management for
individuals and businesses through real-life situations.
11
How can financial management
help individuals, businesses, and
governments achieve their
goals?
12
● “the science and art of managing money” (Gitman and

Zutter, 2012)
● application of management functions such as planning,

organizing, leading, and controlling financial assets to
achieve organizational goals
13
Financial Management in Business
● determines the following:

○ how much additional funds are needed and how to
obtain it
○ how, where, and when to invest if there are excess
funds
● requires the analysis of relevant business data
14
Check Your Progress
Check
You
Progre r
ss
How does financial management differ from accounting?
15
The Financial System
● interaction between people, businesses, and

governments
● facilitates and expedites the flow of funds or financial
capital
○ between savers and borrowers or investors
○ from savings to investments
16
17
Components
● financial institutions
● financial markets
● financial instruments
18
Financial Institution
an organization that
directs the transfer of
financial resources from its
source to potential users
(Kaliski, 2007)
19
Financial Institution
plays the part of

intermediaries, managing
the efficient flow of funds
between savers and
borrowers (Collins, 2012)
20
Commercial Banks and Insurance Companies
Closer
Look
● Banks where people

○ keep their savings
○ withdraw their money
○ acquire credit and debit cards
○ apply for personal or business loans
● Insurance and investment companies where people
○ pay premiums
○ invest their money
○ transfer risks
21
Financial Market
provides a platform for

financial managers to
acquire funds from various
sources (Kaliski, 2007)
22
Financial Markets
allows the exchange of

financial resources in
● capital market
● money market
23
Capital markets
● exchange of long-term
securities
● traded through brokers
and dealers
● may or may not occur
in an organized stock
Capital Markets exchange
24
Money markets
● exchange of short-term
securities
○ treasury bills,
commercial paper,
and negotiable
instruments
Money Markets (Collins, 2012)
25
The Stock Market
Closer
Look
Philippine Stock Exchange (PSE) is where the buying and

selling of corporate stocks happen. The PSE is an example
of a capital market.
26
Financial
Instrument
any contract which
produces a financial asset
of one party while creating
a financial liability or
equity instrument of
another (IFAC, 2020)
27
Financial System
Financial
Instrument
Examples: corporate
bonds, checks, futures,
option contracts, shares of
stock
28
Credit Cards and Checks
Closer
Look
Buying items using a credit card

● a financial asset for the bank
● a liability to debtors
29
Check Your Progress
Check
You
Progre r
ss
What are the main components of a financial system?
30
Wealth Maximization
● increasing the business's

value which also increases
the value of shares held by
its stockholders
31
Wealth Maximization
● overall long-term goal in a

business
● takes into account both
risks and return; growth
and survival
32
Profit Maximization
● short-term profits
may increase at the
expense of long-term
profitability
33
Profit Maximization
● the company may
need to borrow
money to increase
sales or expand
production capacity
34
Increased Value of Shares
Closer
Look
If a business spends the funds to develop a valuable

property, say expansion, the investment coalition possibly
recognizes the future positive cash flows associated with the
new property by venturing up the price of the company's
shares. This is a concrete example of wealth maximization.
35
Check Your Progress
Check
You
Progre r
ss
How is profit maximization different from wealth maximization?
36
The Corporate Organizational Structure
Financial managers need to be familiar with the flow of

funds within the company.
A common corporation is divided into various departments,

each of which is responsible for a different set of tasks.
37
38
Board of Directors President and CEO

● highest officer in
● elected by managing the business to
shareholders achieve long-term (CEO)
● represents the and short-term
shareholders in (President) goals
overseeing the ● for some companies,
business these are different
persons and entities
39
VP for Sales and VP for Production

Marketing
● responsible for leading ● leads the creation of
revenue and client goods and services
portfolio activities of
the company
40
VP for VP for Finance or

Administration Chief Financial
Officer (CFO)
● leads the human
resources and general ● manages acquisition of
management activities funds, investments,
operating activities,
and dividend policies
41
The Finance Department
Treasurer Controller
● handles external ● concerned with internal

financing matters
matters such as being in
● responsible for
charge of accounting
managing the cash,
investments, and other and the financial records
financial resources of the organization
42
Check Your Progress
Check
You
Progre r
ss
What are the four major roles of a Chief Financial Officer (CFO)?
43
The Roles of Financial Manager
Financial managers are

involved in different
decisions.
44
Financing Types of Financing:

Decisions
● when, where, and how ● debt financing

to acquire funds for the ● equity financing
company
45
Investing Decisions Types of

Investments:
● what investments would ● short-term (working

be profitable to the capital)
company ● long-term (capital
budgeting)
46
Operation
Decisions The company has
options on
● how to finance working whether to finance
capital accounts such as working capital
accounts receivables
needs by long-
and inventories
term or short-
term.
47
Dividend Policies
A common goal of
all business
● how much should be
ventures is to earn
distributed among the
shareholders
profit or to have a
● how much should be positive return.
retained for future
contingencies
48
A Retail Company Turning Into a Bank?
Case S
tudy
A widely-popular international company engaged in retail

business has consistently nudged its way into the business
of finance. Offering financial services such as:
● prepaid cards
● reloadable credit cards with cash-back features
● encashment of checks
● sale of money orders
● small business loans
Avi Salzman, “Why Walmart Could Become a Serious Player in Banking,” Barron’s, March 1, 2021.
https://www.barrons.com/articles/why-walmart-could-become-a-serious-player-in-banking-51614618870, last
accessed on December 1, 2021. 49
Case S
tudy
The retail company aims for “customers will continue to

drop the banks and buy (the company’s prepaid) cards.”
The investing decision to venture into financial services
resulted in:
● double-digit income growth
● ‘lock-in’ of consumers
Case S
tudy
The company’s growing involvement in finance will

transform the the retail business into a bank. From being a
saver and borrower, it would then become a financial
institution.
Keep in Mind
● Financial management helps individuals, governments, and

businesses achieve their goals. It involves finance: the activity of
acquiring, spending, and managing money and other financial
assets.
52
Keep in Mind
● Financial management is the effective and efficient management

of assets, liabilities, and equity to achieve the company’s primary
goal: the maximization of shareholders’ wealth. To do this,
financial managers consider the long-term results, the risks or
uncertainty, the timing of returns, and the stockholders’ return.
53
Keep in Mind
● Financial managers also make decisions based on the information

they obtain from the financial system. The financial system is a
mix of institutions and mechanisms that expedite the flow of
funds from saving to investments.
54
Keep in Mind
● The four important roles of a

financial manager are financing,
investing, operating, and dividend
policy.
55
Try This
Raise a hand checkmark if the statement is correct.

Otherwise, show a hand crossmark.
1. The shareholders’ wealth is measured by the stock

price.
56
Try This

2. Financial markets may either be depositary or non-

depositary.
57
Try This

3. Profit maximization is the primary goal of a financial

manager.
58
Try This

4. In achieving the objective of profit maximization, the

financial manager tends to select the one that is
expected to result in the highest return.
59
Try This

5. The financial manager suggests the best capital

structure for the company.
60
Practice Your Skills
Briefly answer the following questions in NOT MORE THAN five (5)
sentences.
1. You are the financial manager of Company JKL, which posted
a consistent increase in profits for the whole year. However,
the business environment is still full of uncertainties because
of the pandemic. You are tasked to propose how much the
shareholders should receive and how much should be
retained for future contingencies. As a financial manager,
what factors should you consider in determining Company
JKL’s dividend policy?
61
Answer area
62
Briefly answer the following questions in NOT MORE THAN five (5)
sentences.
2. A small and mid-size enterprise (SMEs) conference was

organized to educate them on the importance of setting up
their business goals. You were invited to speak in one of the
sessions and encourage them to increase their business
value rather than just going for higher profits. How would
you explain to them the difference between wealth
maximization and profit maximization?
63
Answer area
64
Challenge Yourself
Answer the following questions briefly and concisely.
1. Why is it important for start-up entrepreneurs to have a
good understanding of finance? Provide a business
situation and assess the impact of good financial
management.
Answer area
65
Challenge Yourself
Answer the following questions briefly and concisely.
2. Over the past years, people have increasingly used digital

money for their financial transactions. How does this
affect the financial system? Evaluate its effect based on
how the financial system works.
Answer area
66
Photo Credits
Slide 3: supermarket cart on aisle, by Eduardo Soares is licensed under Unsplash License via Unsplash
Slide 4: towfiqu-barbhuiya-jpqyfK7GB4w-unsplash, by Towfiqu barbhuiya is licensed under Unsplash License

via Unsplash
Slide 5: man looking at marketing analytics by Adeolu Eletu is licensed under Unsplash License via Unsplash
Slides 19-20, 31-32: Singapore by the River by Aditya Chinchure is licensed under Unsplash License via
Unsplash
Slides 22-23: George Drachas The Uncomplicated Guide to Investing drachas.com, by Yiorgos Ntrahas is
licensed under Unsplash License via Unsplash
Slides 24-25: Business section of a newspaper, by Annie Spratt is licensed under Unsplash License via
Unsplash
Slides 27-28, 33: supermarket cart on aisle, by Carlos Muza is licensed under Unsplash License via
Unsplash
67
Bibliography
Bragg, Steven. Accounting Reference Desktop. New York: John Wiley & Sons, 2002.
http://www.untag-smd.ac.id/files/Perpustakaan_Digital_1/ACCOUNTING%20Accounting%20Reference%20
Desktop.pdf
Collins, Karen. An Introduction to Business. Accessed October 17, 2021.

https://2012books.lardbucket.org/pdfs/an-introduction-to-business-v1.0.pdf
Dlabay, Les, and James Burrow. Business Finance. Ohio: Thomson South-Western, 2007.
Gitman, Lawrence, and Chad Zutter. Principles of Managerial Finance. Boston: Pearson Prentice Hall, 2012.
International Federation of Accountants (IFAC). The Handbook of International Public Sector Accounting
Pronouncements. New York: IFAC, 2021.
https://www.ifac.org/system/files/publications/files/IPSASB-HandBook-2018-Volume-1.pdf
Kaliski, Burton S. Encyclopedia of Business and Finance, Volume 1. New York: Macmillan Reference USA, 2006.
Melicher, Ronald, and Edgar Norton. Introduction to Finance: Markets, Investments, and Financial Management.
New York: John Wiley & Sons, 2017.
McLaney, Eddie. Business Finance: Theory and Practice. Essex: Pearson Education, 2009.
https://pdf4pro.com/amp/cdn/business-finance-business-finance-mec-5b8929.pdf
68

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Lesson 1.

Personal Financial Goals

Healthy financial habits will contribute to your success and prosperity

Personal financial goals should be clear and achievable so that you

In the same way, companies employ financial managers to manage

This activity aims to target the following DepEd competency:

In this lesson, you should be able to do the following:

● “the science and art of managing money” (Gitman and

● application of management functions such as planning,

● determines the following:

● requires the analysis of relevant business data

How does financial management differ from accounting?

● interaction between people, businesses, and

plays the part of

● Banks where people

provides a platform for

allows the exchange of

Philippine Stock Exchange (PSE) is where the buying and

Buying items using a credit card

What are the main components of a financial system?

● increasing the business's

● overall long-term goal in a

If a business spends the funds to develop a valuable

How is profit maximization different from wealth maximization?

Financial managers need to be familiar with the flow of

A common corporation is divided into various departments,

Board of Directors President and CEO

VP for Sales and VP for Production

VP for VP for Finance or

● handles external ● concerned with internal

Financial managers are

Financing Types of Financing:

● when, where, and how ● debt financing

Investing Decisions Types of

● what investments would ● short-term (working

A widely-popular international company engaged in retail

The retail company aims for “customers will continue to

The company’s growing involvement in finance will

● Financial management helps individuals, governments, and

● Financial management is the effective and efficient management

● Financial managers also make decisions based on the information

● The four important roles of a

Raise a hand checkmark if the statement is correct.

1. The shareholders’ wealth is measured by the stock

Raise a hand checkmark if the statement is correct.

2. Financial markets may either be depositary or non-

Raise a hand checkmark if the statement is correct.

3. Profit maximization is the primary goal of a financial

Raise a hand checkmark if the statement is correct.

4. In achieving the objective of profit maximization, the

Raise a hand checkmark if the statement is correct.

5. The financial manager suggests the best capital

2. A small and mid-size enterprise (SMEs) conference was

2. Over the past years, people have increasingly used digital

Slide 4: towfiqu-barbhuiya-jpqyfK7GB4w-unsplash, by Towfiqu barbhuiya is licensed under Unsplash License

Collins, Karen. An Introduction to Business. Accessed October 17, 2021.

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