Introduction To Financial Management - Business Finance Lesson 1 PDF

INTRODUCTION TO FINANCIAL MANAGEMENT 1. Define Finance 2. Describe who are responsible for financial management within an organization 3. Describe the primary activities of the financial manager OBJECTIVES  ANSWER THE FOLLOWING QUESTIONS 1. It is a financial intermediary handling individ...

INTRODUCTION TO FINANCIAL MANAGEMENT 1. Define Finance 2. Describe who are responsible for financial management within an organization 3. Describe the primary activities of the financial manager OBJECTIVES  ANSWER THE FOLLOWING QUESTIONS 1. It is a financial intermediary handling individual savings. It receives premium payments placed in loans or investments to accumulate funds to cover future benefits. A. life insurance company C. savings bank B. commercial bank D. credit union 2. Which of the following is not a financial institution? A. A pension fund C. A commercial bank B. A newspaper publisher D. An insurance company  3. It is a set up so that employees of corporations or governments can receive income after retirement. A. life insurance company C. Savings bank B. Pension fund D. credit union  4. It is a type of financial intermediary that pools savings of individuals and makes them available to business and government users. Funds obtained through the sale of shares. A. Mutual Funds C. Savings and loans B. Commercial banks D. Credit Union  5. Most businesses raise money by selling their securities in A. direct placement C. public offering B. stock exchange D. private placement  6. Which of the following is not a service provided by financial institutions. A. Buying the businesses of customers B. Investing customers’ savings in stocks and bonds C. Paying savers’ interest on deposit D. Lending money to customers  7. By definition, the money market involves the buying and selling of A. funds that mature in more than one year. B. flows of funds. C. stocks and bonds. D. short-term funds.  8. It creates financial relationship between suppliers and users of short-term funds. A. financial market C. stock market B. money market D. capital market  9. Firms that require funds from external sources can obtain them from A. financial markets C. financial institutions. B. private placement D. All the above. 10. The science and art of managing money. A. Financial Management C. Management B. Finance D. Personal Finance. 10. The science and art of managing money. A. Financial Management C. Management B. Finance D. Personal Finance.  What is Finance and Financial Management? Finance is always of great importance, be it in a business or in one's everyday life. It is important to manage risks in business, it is equally important to manage risks in life as well. Risk is nothing but an uncertain event that might damage your assets and when it is financial risks, it creates loss of Finance. Some books define……… Finance as the science and art of managing money. (Gitman & Zutter, 2012 Some books define……… Finance as the science and art of managing money. (Gitman & Zutter, 2012 Financial Management deals with that decisions that are supposed to maximize the value of shareholder’s wealth (Cayanan). The goal of Financial Management is to maximize the value of shares of stocks. Managers of a corporation are responsible for making the decisions for the company that would lead towards shareholder’s wealth maximization. Organizational structure of the company is important especially in the financial aspect of the business and the particular set of people, each play a role in the decision making of the company. working for the interest of the person on the line above them. Since the managers of the company are making decisions for the interest of the board of directors and the board of directors do the same for the interest of the shareholders, it follows the goal of each individual in a corporate organization should have an objective of shareholders wealth The roles of each position identified 1. Shareholders: The shareholders elect the Board of Directors (BOD). Each share held is equal to one voting right. Since the shareholders elect the BOD, their responsibility is to carry out the objectives of the shareholders. Otherwise, they would not be elected 2.Board of Directors: The board of directors is the highest policy making body in a corporation. The board’s primary responsibility is to ensure that the corporation is operating to serve the best interest of the stockholders Responsibilities of the Board of Directors investments, capital structure and dividend policies. b. Approving company’s strategies, goals and budgets. c. Appointing and removing members of the top management including the president. d. Determining top management’s compensation. e. Approving the information and other disclosures reported in the financial statements (Cayanan, 2015) President (Chief Executive Officer): The roles of a president in a corporation may vary from one company to another. Responsibilities of a President are the following: in the financial statements. Overseeing the operations of a company and ensuring that the strategies as approved by the board are implemented as planned. b. Performing all areas of management: planning, organizing, staffing, directing and controlling. c. Representing the company in professional, social, and civic activities. VP for Marketing: The following are among the responsibilities: a. Formulating marketing strategies and plans. Directing and coordinating company sales. b. Performing market and competitor analysis. c. Analyzing and evaluating the effectiveness and cost of marketing methods applied. d. 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. e. Promoting good relationships with customers and distributors. (Cayanan, 2015) VP for Marketing: The following are among the responsibilities: a. Formulating marketing strategies and plans. Directing and coordinating company sales. b. Performing market and competitor analysis. c. Analyzing and evaluating the effectiveness and cost of marketing methods applied. d. 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. e. Promoting good relationships with customers and distributors. (Cayanan, 2015) VP for Production: The following are among the responsibilities: a. Ensuring production meets customer demands. b. Identifying production technology/process that minimizes production cost and make the company cost competitive. c. Coming up with a production plan that maximizes the utilization of the company’s production facilities. d. Identifying adequate and cheap raw material suppliers. (Cayanan, 2015) VP for Administration: The following are among the responsibilities: a. Coordinating the functions of administration, finance, and marketing departments. b. Assisting other departments in hiring employees. c. Providing assistance in payroll preparation, payment of vendors, and collection of receivables. d. 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) The role of the VP for Finance/Financial Manager is to determine the appropriate capital structure of the company. Capital structure refers to how much of your total assets financed by debt and how much is financed by equity. Capital structure refers to how much of your total assets financed by debt and how much is financed by equity. To be able to acquire assets, our funds must have come somewhere. If it has bought using cash from our pockets, it has financed by equity. On the other hand, if we used money from our borrowings, the asset bought has financed by debt. Functions of Financial Managers 1. Financing decisions- include making decisions as to how to finance long-term investments and working capital-which deals with the day-to-day operations of the company. 2. Investing Decisions- To minimize the probability of failure, long-term investments have supported by a capital budgeting analysis. 3. Operating Decisions – deal with the daily operations of the company especially on how to finance working capital accounts such as accounts receivable and inventories.. 4. Dividend Policies – Dividend is a part of profits that are available for distribution, to equity shareholders. The Finance manager must decide whether the firm should distribute all the profits or retain them or distribute a portion and retain the balance. 4. Dividend Policies – Dividend is a part of profits that are available for distribution, to equity shareholders. The Finance manager must decide whether the firm should distribute all the profits or retain them or distribute a portion and retain the balance. The financial system links the savers and the users of funds. Savings can come from households, individuals, companies, government agencies, or any other entity whose cash inflows are greater than their cash outflows. The financial system through financial intermediaries provides a mechanism by which these savings can be channeled to users of funds, borrowers, and investors. The financial system links the savers and the users of funds. Savings can come from households, individuals, companies, government agencies, or any other entity whose cash inflows are greater than their cash outflows. The financial system through financial intermediaries provides a mechanism by which these savings can be channeled to users of funds, borrowers, and investors.