Financial Management: Definition and Cash Flows

• Financial management covers the planning, organizing, leading, and controlling of an organization's financial activities.
• It emphasizes managing the funds of an organization which include day-to-day operations, investment decisions, and the financing of those investments.

Definition of Financial Management

• Includes planning, organizing, leading, and controlling of all financial activities of an organization.
• Planning is determining how a business will afford its strategic goals and objectives, such as budgeting.
• Organizing involves coordinating and allocating a firm's resources (money) to carry out its plans.
• Leading ensures planned service outcomes are achieved.
• Controlling is the regular monitoring of expenditures to verify against targets and identify changing patterns.
• Emphasis is put on managing an organization's funds, including day-to-day operations, investment decisions, and financing those investments.

Classification of Cash Flows

• Operating Activity indicates the amount of money a company brings in from its ongoing business activities.
• Investing Activity involves the purchase and sale of long-term assets.
• Financing Activity refers to the flow of cash between a business and its owners and creditors (long-term).

Value of Shareholder's Wealth

• Globe Telecom Inc. (Globe) shares closed at Php 2,000.00 on April 25, 2016.
• On that date, Globe's total shares outstanding were 137,742,402.
• As of the same date, the market value of Globe's shares was more than Php 292 billion. Shareholder's Wealth Maximization: Stockholders have to be happy with their investments for them to continuously invest in the company.

PSE

• The Philippine Stocks Exchange (PSE) offers facilities for trading shares of publicly listed companies.
• An IPO (Initial Public Offering) is a way for a company to become publicly listed.

Financial System

• Includes savers, financial intermediaries, and users of funds.
• Savers include households, individuals, corporations, and government agencies.
• Financial Intermediaries include: banks, insurance companies, stock exchange, stock brokerage firms, mutual funds, and other financial institutions.
• Users of Funds include households, individuals, corporations, and government agencies.

Financial Intermediaries

• Banks provide a mechanism where savers can put their excess funds through deposits for example.
• Insurance companies protect from loss of life, or damage to properties.
• Life insurance protects the insured from loss of life.
• Non-life insurance protects the insured from the loss of/damage to properties.
• Stock Exchange - The Philippine Stock Exchange (PSE) is a system for trading of equity securities of publicly listed companies.
• Includes stock brokerage firms, with online brokers and live brokers.
• Online brokers allow for trading in the stock market through the Internet.
• Live brokers require a telephone to call brokers.
• Mutual Funds provide opportunities for big and small investors to invest in financial instruments.
• Other financial institutions includes GSIS, SSS, investment banks and credit unions.

Financial Instruments

• Equity Securities consist of common stock, preferred stock.
• Debt Securities consist of Treasury Bonds and Treasury Bills.

Common & Preferred Stocks

• Common Stock being a common stockholder usually gives a person the right to vote on a board meeting, a part of the company which equals to having ownership to the company, the right to be voted as one of the board of directors and the right to receive dividends when declared by a company but not fixed.
• Preferred Stock gives a person priority to be paid over common stockholders in terms of liquidation, fixed amount of dividends every year, priority in a cash dividend declaration.

Treasury Bonds & Bills

• Treasury Bonds are issued by the National Treasury and are a form of indebtedness of the national government, usually medium to long-term dated.
• Treasury Bills are issued by the National Treasury, are a form of indebtedness of the national government, and are usually short-dated.

Board of Directors (BOD)

• Represent the highest policy-making body in a corporation.
• Are usually the major shareholders of a corporation

BOD Responsibilities

• Setting policies on investments, capital structure, and dividends.
• Approving the company's strategies, goals, and budgets.
• Appointing and removing members of the top management, including the president.
• Determining top management's compensation.
• Approving information and other disclosures reported in the financial statements.

President

• Oversees company operations and ensures that strategies approved by the board are implemented.
• Performs areas of management, including planning, organizing, staffing, directing, and controlling.
• Represents the company in professional, social, and civic activities.

VP for Sales & Marketing

• Formulates marketing strategies and plans.
• Directs and coordinates company sales.
• Performs market and competitor analysis.
• Analyzes and evaluates the effectiveness and cost of marketing methods.
• Conducts or directing research to identify new marketing opportunities.
• Promotes good relationships with customers and distributors.

VP for Production

• Ensures production meets customer demands.
• Identifies production technology/process that minimizes production cost.
• Creates a production plan that maximizes the utilization of the company's production facilities.
• Identifies adequate and competitively priced raw material suppliers.

VP for Administration

• Coordinates the functions of administration, finance, and sales and marketing departments.
• Assists other departments in hiring employees.
• Provides assistance in payroll preparation.
• Determines the location and maximum amount of office space needed.
• Identifies means, processes, or systems to minimize operating costs.

VP for Finance

• Makes financing decisions as to how to finance long-term investments and working capital.
• Determines the appropriate capital structure of the company.
• Decisions on where or not to invest
• Determining how to finance working capital accounts for daily operation of the business.
• Determine whether a company can declare dividends.

Cash Dividends

• Consider the availability of investment opportunities, access to long-term sources of funds and Capital structure.
• Financing decisions involves how to finance long-term investments & working capital, and daily operations.
• Capital budgeting analysis is a technique used to determine the financial viability of long-term investments
• Operating decisions deal with the daily operations

Explore financial management's core principles, encompassing planning, organizing, leading, and controlling financial activities within an organization. Understand how businesses strategically budget and allocate resources. Learn about the classification of cash flows.