Green-and-Yellow-Professional-Finance-Report-Presentation.pptx

Lesson 1 BUSINESS FINANCE Introduction to Financial Management OBJECTIVE 01 Define Finance Describe who are responsible for 02 financial management within an organization 3. Describe th...

Lesson 1 BUSINESS FINANCE Introduction to Financial Management OBJECTIVE 01 Define Finance Describe who are responsible for 02 financial management within an organization 3. Describe the 03 primary activities of the financial manager 4. Describe how the 04 financial manager helps in achieving the goal of the organization 5. Describe the role 05 of financial institutions and markets WHAT IS FINANCE AND FINANCIAL MANAGEMENT? Next slide FINANCE Finance is always of great importance, be it in a business or in one's everyday life. Finance as the science and art of managing money. (Gitman & Zutter, 2012) FINANCIAL MANAGEMEN TFinancial Management deals with that decisions that are supposed to maximize the value of shareholder’s wealth (Cayanan). These decisions will ultimately affect the markets perception of the company and influence the share price. FINANCIAL MANAGEMEN T 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.  ROLES OF EACH POSITION 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 in that position. Ask the learners again, what objective of the shareholders is, just to refresh.  ROLES OF EACH 2. Board ofPOSITION 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 The of the following stockholders. are among the responsibilities of the board of directors: a. Setting policies on investments, capital structure and dividend policies. b. Approving company’s strategies, goals and budgets.  ROLES OF EACH The followingPOSITION are among the responsibilities of the board of directors: a. Setting policies on 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)  ROLES OF EACH POSITION 3. President (Chief Executive Officer): The roles of a president in a corporation may vary from one company to another. Among the responsibilities of a president are the following: a. Approving the information and other disclosures reported in the financial statements. Overseeing the operations of a company and ensuring that the strategies as approved by the board are implemented as planned.  ROLES OF EACH POSITION 3. President (Chief Executive Officer): b. Performing all areas of management: planning, organizing, staffing, directing and controlling. c. Representing the company in professional, social, and civic activities.  ROLES OF EACH POSITION 4. 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)  ROLES OF EACH POSITION 5. 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)  ROLES OF EACH POSITION 6. 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  ROLES OF EACH POSITION 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.  ROLES OF EACH POSITION 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. WHAT IS FINANCE AND FINANCIAL MANAGEMENT? Next slide 1. FINANCING DECISIONS -include making decisions as to how a 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, a long-term investments have supported by a capital budgeting analysis. 3. OPERATING DECISIONS – deal with the daily operations of athe 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 a 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. end Policies DIFFERENTIATE THE FINANCIAL INSTRUMENTS, FINANCIAL INSTITUTIONS AND FINANCIAL MARKETS Next slide 1. FINANCIAL INSTITUTIONS are companies in the financial sector a that provide a broad range of business and services including banking, insurance, and investment management. IDENTIFY EXAMPLES OF FINANCIAL INSTITUTIONS/INTERMEDIARIES: A. COMMERCIAL BANKS - Individuals deposit funds at commercial a banks, which use the deposited funds to provide commercial loans to firms and personal loans to individuals, and purchase debt securities issued by firms or government agencies. B. INSURANCE COMPANIES - Individuals purchase insurance (life, property and casualty, and health) protection with insurance premiums. The insurance a companies pool these payments and invest the proceeds in various securities until the funds needed to pay off claims by policyholders. Because they often own large blocks of a firm’s stocks or bonds, they frequently attempt to influence the management of the firm to improve the firm’s performance, and ultimately, the performance of the securities they own. C. MUTUAL FUNDS - Mutual funds owned by investment companies that enable small investors to enjoy the benefits of investing in a diversified portfolio of securities purchased on atheir behalf by professional investment managers. When mutual funds use money from investors to invest in newly issued debt or equity securities, they finance new investment by firms. Conversely, when they invest in debt or equity securities already held by investors, they are transferring ownership of the securities among investors. D. PENSION FUNDS - Financial institutions that receive payments from employees and invest the proceeds on their behalf. a Other financial institutions include pension funds like Government Service Insurance System (GSIS) and Social Security System (SSS), unit investment trust fund (UITF), investment banks, and credit unions, among others. 2. FINANCIAL INSTRUMENTS -is a real or a virtual document representing a legal agreement involving some sort of monetary a value. These can be debt securities like corporate bonds or equity like shares of stock. When a financial instrument issued, it gives rise to a financial asset on one hand and a financial liability or equity instrument on the other. A. FINANCIAL ASSET is any asset that is: Cash An equity instrument of another entity A contractual right to receive cash or a another financial asset from another entity. A contractual right to exchange instruments with another entity under conditions that are potentially favorable. (IAS 32.11) Examples: Notes Receivable, Loans Receivable, Investment in Stocks, B. FINANCIAL LIABILITY is any liability that is a contractual obligation: Toa deliver cash or other financial instrument to another entity. To exchange financial instruments with another entity under conditions that are potentially unfavorable. (IAS 32) Examples: Notes Payable, Loans Payable, Bonds Payable C. AN EQUITY INSTRUMENT is any contract that evidences a residual interest in the assets of an entity after deducting a all liabilities. (IAS 32) Examples: Ordinary Share Capital, Preference Share Capital Identify common examples of Debt and Equity Instruments D. DEBT INSTRUMENTS - generally have fixed returns due to fixed interest rates. a Examples of debt instruments are as follows: Treasury Bonds and Treasury Bills issued by the Philippine government. These bonds and bills have usually low interest rates and have very low risk of default since the government assures that these has been paid. D. DEBT INSTRUMENTS Examples of debt instruments are as follows: Corporate Bonds issued by publicly a companies. These bonds usually listed have higher interest rates than Treasury bonds. However, these bonds are not risk free. If the company issued the bonds goes bankrupt, the holder of the bonds will no longer receive any return from their investment and even their principal investment has wiped out. E. EQUITY INSTRUMENTS - generally have varied returns based on the performance of the issuing a company. Returns from equity instruments come from either dividends or stock price appreciation. THE FOLLOWING ARE TYPES OF EQUITY INSTRUMENTS: Preferred Stock has priority over a common stock in terms of claims over the assets of a company. This means that if a company has liquidated and its assets have to be distributed, no asset be distributed to common stockholders a unless all the claims of the preferred stockholders has given. Moreover, preferred stockholders have also priority over common stockholders in cash dividend declaration. Dividends to preferred stockholders are usually in a fixed rate. No cash dividends given to common stockholders unless all the dividends due to preferred stockholders paid first. (Cayanan, 2015) THE FOLLOWING ARE TYPES OF EQUITY INSTRUMENTS: Holders of Common Stock on the other hand are the real owners of the company. If the company’s growth is encouraging, the common stockholders willabenefit on the growth. Moreover, during a profitable period for which a company may decide to declare higher dividends, preferred stock will receive a fixed dividend rate while common stockholders receive all the excess. 3. FINANCIAL MARKET - refers to a marketplace, where creation and trading of financial assets, a such as shares, debentures, bonds, derivatives, currencies, etc. take place. CLASSIFY FINANCIAL MARKETS INTO COMPARATIVE GROUPS: - Primary vs. Secondary Markets To raise money, users of funds will go to a primary market to issue new securities (either debt or equity) through a public a offering or a private placement. The sale of new securities to the public referred to as a public offering and the first offering of stock named an initial public offering. The sale of new securities to one investor or a group of investors (institutional investors) is referred to as a private placement. CLASSIFY FINANCIAL MARKETS INTO COMPARATIVE GROUPS: - Primary vs. Secondary Markets To raise money, users of funds will go to a primary market to issue new securities (either debt or equity) through a public offering a or a private placement. The sale of new securities to the public referred to as a public offering and the first offering of stock named an initial public offering. The sale of new securities to one investor or a group of investors (institutional investors) is referred to as a private placement. CLASSIFY FINANCIAL MARKETS INTO COMPARATIVE GROUPS: Money Markets vs. Capital Markets Money markets are a venue wherein securities with short-term maturities (1 year or less) are sold. They have created because some individuals, businesses, governments, and financial institutions have a temporarily idle funds that they wish to invest in a relatively safe, interest?bearing asset. At the same time, other individuals, businesses, governments, and financial institutions find themselves in need of seasonal or temporary financing. On the other hand, securities with longer-term maturities sold in Capital markets. The key capital market securities are bonds (long-term debt) and both common stock and preferred stock (equity, or ownership).