MEAR146 MOA21 1st Sem (2024-2025) Introduction of Financial Management PDF

MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570505 11/7/24, 9:55 PM Home MEAR146 MOA21 1st Sem ( 2024-2025 ) Introduction of Financial Management Profit Maximization vs Wealth Maximization Immersive Reader Profit Maximi...

MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570505 11/7/24, 9:55 PM Home MEAR146 MOA21 1st Sem ( 2024-2025 ) Introduction of Financial Management Profit Maximization vs Wealth Maximization Immersive Reader Profit Maximization and Wealth Maximization are two key financial goals for business, but they differ in focus and approach: PROFIT MAXIMIZATION Objective: The primary goal is to maximize profit within a given time frame. Time frame: It focuses on short-term gains. Measurement: Profit is measured as the difference between revenues and expenses. Focus: Operational efficiency, cutting costs, and increasing sales. Limitation: Short-term focus: It might encourage decisions that increase short-term profits but harm long-term sustainability. Risk: It doesn't take into account the risks associated with higher profits. Quality of Earning: Profit maximization ignores non-monetary factors like customer satisfaction, employee welfare, and social responsibility. Ignoring Long-term growth: Companies may avoid long-term investments that can benefit the firm in the future. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94570505 Page 1 of 2 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570505 11/7/24, 9:55 PM WEALTH MAXIMIZATION (also known as Value Maximization or Shareholder Value Maximization): Objective: The goal is to maximize the wealth of the shareholders or owners over time. Time Frame: It emphasizes long-term growth and sustainability. Measurement: Wealth is measured by the market value of the company's shares (stock price) and the dividends paid. Focus: Strategic decisions that increase the firm's overall value, including long-term investment in innovation, sustainable growth, and risk management. Advantages: Long-term focus: Wealth maximization encourages sustainable growth and long- term investments. Risk Considerations: It factors in the risks and rewards of business decisions. Stockholder Satisfaction: It aligns the interests of management with shareholders, ensuring that decisions contribute to shareholder wealth. Comprehensive: Unlike profit maximization, it looks beyond short-term profits and considers the overall health and growth potential of the business. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94570505 Page 2 of 2 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570271 11/7/24, 9:55 PM Home MEAR146 MOA21 1st Sem ( 2024-2025 ) Introduction of Financial Management Scope of Financial Management / Finance Function Immersive Reader The scope of Financial Management is extensive and covers several critical areas essential for the effective financial health and growth of an organization. In the Philippines, the scope of Financial Management encompasses various aspects, including: Corporate Finance: Managing a company's financial activities, including capital budgeting, financial planning, and managing investments. Investment Management: Overseeing portfolios, stocks, bonds, and other investment assets for both individuals and institutions. Risk Management: Identifying and mitigating financial risks through strategies such as insurance, diversification, and hedging. Banking and Financial Services: Managing operations and services of banks and financial institutions, including lending, deposits, and financial advisory. Public Finance: Handling government budgets, public expenditures, and fiscal policies to ensure economic stability and growth. Personal Financial Planning: Assisting individuals with budgeting, savings, retirement planning, and estate planning. Regulatory Compliance: Ensuring adherence to financial regulations and standards set by institutions like Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP). Financial Reporting and Analysis: Preparing financial statements and reports and analyzing financial performance to aid decision-making. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94570271 Page 1 of 3 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570271 11/7/24, 9:55 PM Finance functions refer to the various activities and responsibilities carried out by the finance department of an organization to ensure proper management of its financial resources. Invesment Decision Also known as capital budgeting, this function involves allocating funds to long-term assets. The goal is to invest in project or assets that will yield the highest returns over time. Key aspects include: Evaluation of profitability: Assessing potential investments based on their expected returns and associated risks. Risk Analysis: Considering the uncertainties and potential risks involved in the investment. Opportunity Cost: Evaluating the cost of forgoing the next best alternative when making an investment decision. Financing Decision This function focuses on determining the best mix of debt and equity to finance the company's operations and growth. Key considerations include: Capital Structure: Deciding the optimal balance between debt and equity financing. Cost of Capital: Minimizing the cost of capital to maximize shareholder value. Risk and Return: Balancing the risk and return associated with different financing options. Dividend Decision https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94570271 Page 2 of 3 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94570271 11/7/24, 9:55 PM This involves deciding how much of the company's profits should be distributed to shareholders as dividends and how much should be retained for reinvestment. Key factors include: Profit Distribution: Determining the portion of profits to be paid out as dividends. Retention Ratio: Deciding the amount of profit to be retained for future growth. Shareholder Expectations: Balancing the expectations of shareholders with the company's reinvestment needs. Liquidity Decision This function ensures that the company has sufficient cash flow to meet its short-term obligations. Key elements include: Cash Management: Maintaining adequate cash reserves to handle day-to-day operations and unexpected expenses. Working Capital Management: Managing current assets and liabilities to ensure liquidity. Short-term Financing: Arranging short-term financing to cover any cash flow gaps. These finance functions are crucial for the overall financial health and strategic growth of a company. They help in making informed decisions that balance short-term needs with long-term goals. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94570271 Page 3 of 3 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534438 11/7/24, 9:55 PM Home MEAR146 MOA21 1st Sem ( 2024-2025 ) Introduction of Financial Management Real and Financial Assets Immersive Reader REAL ASSETS Real assets are tangible and physical resources that derive value from their inherent substance and usage in the economy. In the Philippines, real assets play a significant role in various sectors such as real estate, agriculture, and infrastructure development. Real Estate: The real estate sector is vital components of the Philippines economy, with assets like land, buildings, and commercial properties being among the most common real assets. Investments in urban areas, particularly in Metro Manila and key cities, drive the value of this sector. Residential properties, commercial complexes, and industrial estates are key assets here. Infrastructure: The Philippines government's "BUILD, BUILD, BUILD" program has emphasized infrastructure development, creating and enhancing transportation systems (roads, bridges, airports), power generation facilities, and public utilities. Thes physical infrastructures are categorized as real assets due to their long-term value in the economy. Natural Resources: The Philippines is rich in natural resources, including agricultural land, mineral deposits (ie. gold, copper, nickel) and fisheries. These resources are real assets because they can generate future economic benefits through extraction, production, and trade. Equipment and machinery: In sectors like manufacturing, agriculture, and construction, equipment and machinery are critical real assets. Their value is derived from their utility in producing goods and services. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534438 Page 1 of 4 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534438 11/7/24, 9:55 PM FINANCIAL ASSETS Financial assets are intangible assets that derive value from contractual claims or ownership of monetary resources. They include stocks, bonds, and other forms of investments. In the Philippines, the financial asset market is expanding due to improve economic conditions and increased investor participation. Stocks and Shares: Equity ownership in publicly traded companies listed on the Philippines Stock Exhange (PSE). represents a significant financial asset. Investors purchase shares in companies, and these shares in companies, and these shares represent claims on the company's future earning and assets. Bonds: Bonds are fixed - income financial assets issued by corporations, local governments, and the national government (through instruments like Treasury bonds and bills). They represent debt owned by the issuer to bondholders, with fixed interest payments over time. In the Philippines, bonds are an important source of funding for both public and private projects. Bank Deposits and Savings Accounts: Deposits held in Philippine banks, whether in savings accounts, time deposits, or checking accounts, are common financial assets. They provide liquidity and modest returns in the form of interest income. Mutual Funds and Unit Investment Trust Funds (UITFs): These pooled investment vehicles allow individuals to invest diversified portfolios of stocks, bonds, and other financial assets managed by professional fund managers. They are becoming increasingly https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534438 Page 2 of 4 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534438 11/7/24, 9:55 PM popular among Filipino investors seeking diversified exposure to financial markets. Derivatives: Derivatives, such as options and futures contracts, are financial instruments whose value is derived from an underlying asset, such as a stock or a commodity. Although still a developing market in the Philippines, derivatives offer hedging opportunities against financial risks. Foreign Currency Assets: Many Filipinos invest in foreign currencies as financial assets, particularly the US dollar, for remittances or as a hedge against peso fluctuations. OFW (Overseas Filipino Workers) remittances are a key component in the country's foreign currency reserves, contributing significantly to the economy. KEY DIFFERENCES BETWEEN REAL AND FINANCIAL ASSETS IN THE PHILIPPINES 1. Tangible vs Intangible: Real assets are tangible (ie. land, buildings), while financial assets are intangible (ie. stocks, bonds). 2. Economic Contribution: Real assets generally contribute directly to the production of goods and services, while financial assets contribute by facilitating the transfer of capital within the economy. 3. Value Sources: The value of real assets comes from their physical presence and usage, while financial assets derive value from ownership claims and contractual rights. 4. Risk and Liquidity: Financial assets tend to be more liquid (easily convertible to cash), but may carry higher market risks. Real assets may be less liquid but often provide stability and long-term value appreciation. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534438 Page 3 of 4 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534438 11/7/24, 9:55 PM Both real and financial assets are essential to the Philippines' economic growth, with real assets driving physical development and financial assets supporting investment, capital flows, and wealth creation. https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534438 Page 4 of 4 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534066 11/7/24, 9:54 PM Home MEAR146 MOA21 1st Sem ( 2024-2025 ) Introduction of Financial Management Meaning, Nature and Scope of Finance Immersive Reader Financial Management involves the strategic planning, organizing, directing, and controlling of financial activities within an organization. It ensures the efficient use of financial resources, maximizing profitability, ensuring liquidity, and sustaining long-term financial health. In the Philippines, this function is vital for both public and private sectors, particularly due to the evolving financial landscape, driven by local economic policies, globalization, and technological changes. NATURE OF FINANCIAL MANAGEMENT The nature of financial management in the Philippines encompasses several key functions: Investment Decision: This involves the selection of appropriate investment projects based on risk-return tradeoffs. In the Philippines, financial managers assess investment opportunities both domestically and abroad. Financing Decisions: Companies in the Philippines need to decide on the optimal capital structure, determining how to balance between equity, debt, and internal funding sources. Dividend Decisions: Deciding how much profit to distribute to shareholders and how https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534066 Page 1 of 3 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534066 11/7/24, 9:54 PM much to retain for future investment is crucial. Risk Management: Financial Management also involves hedging against various financial risks (ie. currency fluctuations, interest rate risk) to ensure stability in volatile markets. SCOPE OF FINANCIAL MANAGEMENT IN THE PHILIPPINES The scope of financial management in the Philippines includes: Capital Budgeting: Companies evaluate investment projects based on economic conditions, inflation rates, and policies such as tax incentives offered by the government. The Philippines' growing infrastructure development and government projects (like Build, Build, Build) also create opportunities for capital investment. Working Capital Management: This involves managing short-term assets and liabilities to ensure a business can meet its operational needs. In the Philippines, businesses need to manage liquidity carefully due to various economic conditions. Capital Structure Decisions: Businesses must decide on the optimal mix of debt and equity. Factors such as interest rates, stock market conditions, and government regulation affect these decisions. Profit Planning and Control: Financial managers in the Philippines focus on maximizing profits while controlling costs. This includes preparing budgets, analyzing financial statements, and ensuring cost-efficiency. Financial Markets and Institutions: Understanding the Philippines financial markets (stock exchanges, bonds, etc.) and the role of institutions like the Bangko Sentral ng Pilipinas (BSP) is crucial for financial managers to operate successfully in this https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534066 Page 2 of 3 MEAR146 MOA21 1st Sem ( 2024-2025 ) - https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037§ion_id=94534066 11/7/24, 9:54 PM environment. International Financial Management: With increasing globalization, financial managers in the Philippines also deal with cross-border financing, foreign exchange risks, and international investments https://dlsud.edu20.org/student_lesson/show/4933962?lesson_id=22767037&section_id=94534066 Page 3 of 3