BUSINESS

FINANCE
IDENTIFYING THE ROLES IN A
CORPORATE ORGANIZATION

Quarter 1 Week 1 & 2 Module 1

Learning Competencies:

• Explain the major role of financial management and the different individuals
involved. (ABM_BF12-IIIa-1)

• Explain the flow of funds within an organization – through and from the
enterprise—and the role of the financial manager.
 HOW TO USE THIS MODULE?
Before starting the module, I want you to set aside other task/s that may disturb
you while enjoying the lessons. Read the simple instructions below to successfully enjoy
the objectives of this kit. Have fun!

1. Follow carefully all the contents and instructions indicated in every page of this
module.
2. Write on your notebook the concepts about the lessons. Writing enhances learning
that is important to develop and keep in mind.
3. Perform all the provided activities in the module
4. Let your facilitator/guardian assess your answers using the answer key card.
5. Analyze conceptually the posttest and apply what you have learned.
6. Enjoy studying!

PARTS OF THE MODULE

 In This module, you will be able to:

• Explain the major roles of financial management and the different individuals
involved.
• Explain the flow of funds within an organization – through and from the
enterprise—and the role of the financial manager.

Specifically, this module will help you to:

➢ Understand the key positions in a corporate organization and identify the roles of
each.
➢ Identify the primary activities of the financial manager.
Let us start your journey in learning more on the
identifying the roles in a Corporate Organization. I
am sure you are ready and excited to answer the
Pretest.

I. Fill in the blanks.

Direction: Identify the following. Write your answer in the blank space provided
below.

1. The _______________________ is the highest policy making body in a corporation.

2. The ______________________analyze and evaluate the effectiveness and cost of
marketing methods applied.
3. The ________________________ elect the Board of Directors (BOD).
4. The ______________________oversee the operations of a company and ensure that
the strategies as approved by the board are implemented as planned.
5. The _____________________provide assistance in payroll preparation, payment of
vendors, and collection of receivables.
II. TRUE or FALSE
Direction: Before each statement, write TRUE if the statement is correct or FALSE if
the statement is incorrect.

___________1. Capital structure refers to how much of your total assets is financed by
debt and how much is financed by equity.

___________2. Short term investment decisions are needed when the company is in
an excess cash position.

___________3. The mix of debt and equity varies in different corporations depending
on management’s strategies.

____________4. Managers’ credit are the amounts owed to suppliers for the
inventories they delivered or services they provided.

____________5. It is not the role of a financial manager to determine when the

company should declare cash dividends.
Great, you finished answering the
questions. You may request your facilitator
to check your work. Congratulations and
keepon learning!

Let us begin by giving the result of your interview with a Chief Financial Officer
(CFO) or Vice-President for Finance.

Directions: Write the name of the company that you have interviewed. List down the
roles and functions that you identified from the interview. Take note of the functions
that are not roles of a Financial Manager but are roles of other managerial positions.
Know that these functions are done by people in the company who are holding other
managerial positions. A Financial Manager is part of a management team whose
ultimate goal is to maximize shareholders wealth.

NAME OF COMPANY:
ROLES AND FUNCTIONS OF A FINANCIAL MANAGER
1. 6.
2. 7.
3. 8.
4. 9
5. 10.
The Corporate Organization Structure
Every organization has corporate structure to illustrate the roles and functions of
each employee. It also shows the corporate organization structure and inform them that
this particular set of people each play a role in the decision making of the company.

From the diagram presented, each line is 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 interests
of the shareholders, it follows that the goal of each individual in a corporate organization
should have an objective of shareholders’ wealth maximization. (Cayanan, A. 2015)

Let us discuss briefly the roles of each position identified. Enjoy learning.
Shareholders: The shareholders elect the Board of Directors (BOD). Each share held is
equal to one voting right. Since the BOD is elected by the shareholders, their
responsibility is to carry out the objectives of the shareholders otherwise; they would not
have been elected in that position.

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.
 THE RESPONSIBILITIES OF A BOARD OF DIRECTORS
1. Setting policies on investments, capital structure and dividend policies.
2. Approving company’s strategies, goals and budgets.
3. Appointing and removing members of the top management including the
president.
4. Determining top management’s compensation.
5. Approving the information and other disclosures reported in the Financial
statements (Cayanan 2015)

THE RESPONSIBILITIES OF A PRESIDENT OR CHIEF EXECUTIVE OFFICER

(CEO)
1. Overseeing the operations of a company and ensuring that the strategies as
approved by the board are implemented as planned.
2. Performing all areas of management: planning, organizing, staffing directing
and controlling.
3. Representing the company in professional, social, and civic activities.
4. Carries out the decision making for all functions

VP for Marketing: The following are among the responsibilities of VP for Marketing
1. Formulating marketing strategies and plans.
2. Directing and coordinating company sales.
3. Performing market and competitor analysis.
4. Analyzing and evaluating the effectiveness and cost of marketing methods applied.
5. 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.
6. Promoting good relationships with customers and distributors. (Cayanan, A. 2015)

VP for Production: The following are among the responsibilities of VP for Production:
- Ensuring production meets customer demands.
- Identifying production technology/process that minimizes production cost and make
the company cost competitive.
- Coming up with a production plan that maximizes the utilization of the company’s
production facilities.
- Identifying adequate and cheap raw material suppliers. (Cayanan, A. 2015)
 VP for Administration: The following are among the responsibilities of VP for
Administration:
1. Coordinating the functions of administration, finance, and marketing
departments.
2. Assisting other departments in hiring employees.
3. Providing assistance in payroll preparation, payment of vendors, and collection
of receivables.
4. Determining the location and the maximum amount of office space needed by the
company.
5. Identifying means, processes, or systems that will minimize the operating costs
of the company. (Cayanan, A. 2015)

Functions of a Financial Manager

The four functions of a VP for finance (CFO) are as follows:

- Financing

- Investing

- Operating

- Dividend Policies

Recall from the previous lesson that there are situations when we are faced with
lack of funds. Financing decisions include making decisions on how to fund long term
investments (such as company expansions) and working capital which deals with the
day to day operations of the company (i.e., purchase of inventory, payment of
operating expenses, etc.).

The role of the VP for Finance of the Financial Manager is to determine the
appropriate capital structure of the company. Capital structure refers to how much of
your total assets is financed by debt and how much is financed by equity. To illustrate,
show/draw the figure below:
 Recall that Assets = Liabilities + Owner’s Equity. To be able to acquire assets, our
funds must have come somewhere. If it was bought using cash from our pockets, it is
financed by equity.

On the other hand, if we used money from our borrowings, the asset bought is
financed by debt. In the figure above, the total assets is financed by 60% debt and 40%
equity.

Accordingly, the capital structure is 60% debt and 40% equity. Try to analyze. Are
there ideal mixture of debt and equity across corporations? Try to express inner
understanding as a manager. Explain your answer.
 The answer is None.

The mix of debt and equity varies in different corporations depending on

management’s strategies. It is the responsibility of the Financial Manager to determine
which type of financing (debt or equity) is best for the company.

Recall that, investing is where to put your excess cash to make it more profitable.
We expand that definition by including cash held taken from funds as a result of
financing decisions. Investments may either be short term or long term.

Short term investment decisions are needed when

the company is in an excess cash position. To plan for
this, the Financial Manager should be able to make use of
Financial Planning tools such as budgeting and
forecasting. Moreover, the company should choose
which type of investment it should invest in that would
provide a most optimal risk and return trade off.
https://int.search.myway.com/search/AJimage.jhtml?

Long term investments should be supported by a

capital budgeting analysis which is among the
responsibilities of a finance manager. Capital
budgeting analysis is a tool to assess whether the
investment will be profitable in the long run. This is
a crucial function of management especially if this
investment would be financed by debt. The lenders
should have the confidence that the investments that
management will push through with will be
profitable or else they would not lend the company
any money. https://int.search.myway.com/search/AJimage.jhtml?

Operating decisions deal with the daily operations of the company. The role of the VP
for finance is determining how to finance working capital accounts such as accounts
receivable and inventories. The company has a choice on whether to finance working
capital needs by long term or short term sources. Why does a Financial Manager need to
choose which source of financing a company should use? What do they need to consider
in making this decision?
Short Term sources are those that will be payable in at most 12 months. This includes
short-term loans with banks and suppliers’ credit. For short-term bank loans, the interest
rate is generally lower as compared to that of longterm loans. Hence, this would lead to
a lower financing cost. Suppliers’ credits are the amounts owed to suppliers for the
inventories they delivered or services they provided.

Long term sources, on the other hand, mature in longer periods. Since this will be paid
much later, the lenders expect more risk and place a higher interest rate which makes the
cost of long term sources higher than short term sources. However, since long term
sources have a longer time to mature, it gives the company more time to accumulate cash
to pay off the obligation in the future.

Dividend Policies. Recall that cash dividends are paid by corporations to existing
shareholders based on their shareholdings in the company as a return on their
investment. Some investors buy stocks because of the dividends they expect to receive
from the company. Non-declaration of dividends may disappoint these investors. Hence,
it is the role of a financial manager to determine when the company should declare cash
dividends.

Before a company may be able to declare cash dividends, two conditions must
exist:

1. The company must have enough retained earnings (accumulated profits) to

support cash dividend declaration.

2. The company must have cash.

What do you think will be the effect of the decision of management in paying
dividends? Remember that dividends come from the company’s cash and availability of
unrestricted retained earnings.

Recall that one of the functions of a finance manager is investing and its available
cash may be used to invest in long term investments that would increase the profitability
of the company. Some small enterprises which are undergoing expansion may have
limited access to long term financing (both long term debt and equity). This results to
these small companies reinvesting their earnings into their business rather than paying
them out as dividends.
 Answer Key:

• Availability of financially viable long-term investment

• Access to long term sources of funds

• Management’s Target Capital structure

On the other hand, companies which have access to long term sources of funds
may be able to declare dividends even if they are faced with investment opportunities.
However these investment opportunities are financed by both debt and equity. The
management usually appropriates a portion of retained earnings for investment
undertakings and this may limit the amount of retained earnings available for dividend
declaration. Examples of these companies are companies such as PLDT, Globe Telecom,
and Petron. (information as of 2014).

Message from the CFOs Reflect on the quotes cited

and mention how critical and dynamic working in the
finance field is. Share the following quotes from the Chief
Financial Officers (CFOs) of the respective corporations.

Unilever: ―Finance plays a critical role across every aspect of our business. We enable
the business to turn our ambition and strategy into sustainable, consistent and superior
performance‖ - Jean-Marc Huët (Unilever)

Jollibee: ―It’s very exciting because you are not just thinking of today but what the
company will need in the future‖ - Ysmael V. Baysa Morales,2013)

SM Corporation: ―Now, we don’t go out because we need funds. We go out because

it’s an opportunity.‖ – Jose T. Sio (Montealegre, 2015)

Activity 1. Directions: Answer the following questions to enhance your critical

thinking skills as a future financial manager of a company.

a) Why should shareholder wealth maximization be the overriding objective of

management?
_____________________________________________________________________
_____________________________________________________________________
b) What other positions can you think of that are related to financial
management? ________________________________________________________
 Activity 2.
Directions: Discuss briefly the roles of each position identified. Write your answer
on the space provided for each item.

a. Shareholders
b. Board of Directors
c. President (CEO)
d. VP for Marketing
e. VP for Production
f. VP for Administration
g. VP for Finance

• A Financial Manager is part of a management team whose ultimate goal is to

maximize shareholders wealth.
• The president cannot manage the company on his own, especially when the
corporation has become too big. To assist him are the vice presidents of different
functional areas: finance, marketing, production and administration.
• Financing decisions include making decisions on how to fund long term
investments (such as company expansions) and working capital which deals with
the day to day operations of the company (i.e., purchase of inventory, payment of
operating expenses).
• Before a company may be able to declare cash dividends, two conditions must
exist:
1. The company must have enough retained earnings (accumulated profits) to
support cash dividend declaration.
2. The company must have cash.
• One of the functions of a finance manager is investing and its available cash may
be used to invest in long term investments that would increase the profitability of
the company.
Directions: Analyze and answer the question briefly.

1. Why does a Financial Manager need to choose which source of financing a

company should use? What do they need to consider in making this decisions?

2. Globe Telecom: ―Yesterday’s solutions are never adequate for the future‖ – Albert
De Larrazabal (Klobucher, 2015). Explain briefly.

I. MULTIPLE CHOICE
Direction: Choose the letter corresponding to the correct answer for each of the
questions provided below.
1. The role of the _______________________________ is to determine the appropriate
capital structure of the company.

a. VP for Marketing

b. VP for Finance of the Financial Manager

c. VP for Production

d. VP for Administration

2. ______________________________ is a tool to assess whether the investment will be

profitable in the long run.
a. Capital budgeting analysis
b. Chief Financial Officer

c. Shareholders

d. Dividend policies

e. Short term investment

3. _______________________ include making decisions on how to fund long term

investments (such as company expansions) and working capital which deals with the
day to day operations of the company.

a. Sources of funds

b. Short term investment decisions

c. Issuance of new shares

d. Financing decisions

4. Capital structure refers to how much of your total assets is financed by debt and
how much is financed by equity.

a. Capital structure

b. Dividend Policies

c. Retained earnings for investment

d. Long term investment decisions

5. If we used the money from our borrowings, the asset bought is financed by
________________________.

a. Equity

b. Raw material suppliers

c. Debt

d. Cash dividends
Cayanan, A. & Borja (forthcoming). Business Finance.
Quezon City. Rex Bookstore.
Gitman, L. J. & Zutter C. J. (2012), Principles of Managerial Finance (13th Ed), USA:
Prentice-Hall
https://smallbusiness.chron.com/business-financing-problems-292.html. Retrieved
June 17, 2020 https://www.investopedia.com/terms/c/corporatefinance.asp. Retrieved
June 17, 2020
https://corporatefinanceinstitute.com/resources/knowledge/finance/corpora te-
finance-industry/. Retrieved June 17, 2020 https://www.cleverism.com/corporate-
finance-essentials