Business Finance - Introduction To Financial Management

WORDS of FINANCE
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The Definition of Finance Activities of the Financial
Manager and Financial Institutions and Markets
The Major Role of Financial Management and the
Different Individuals Involved

 Difference Financial Institution from Financial
Instrument and Financial Market.
 The Flow of Funds Within Organization-through
and from the Enterprise and the Role of Financial
Manager
OBJECTIVES:
1. Explain the major role of financial management
and the different individuals involved.
2. Distinguish a financial institution from financial instrument
and financial market.
3. Describe the flow of funds within organization through and
from the enterprise and the role of the financial manager in
the business.
4. Generalize the lesson based on their earned learnings.
5. Describe the impact or relevance of studying business
finance.
6. Share their points of view about the career path in the
future.
Introduction to Financial
Management
What do you mean by the words “To finance”?
 To provide funding in the form of loan or
borrowed money with the intent of collecting the
money back after specified period of time.
Definition of Finance
 For the economist, its the allocation of scarce
resources which includes money.
 For business, finance manages the aspect of
operation that deals with money matter.
 Deals with the principle, institution, instruments
and procedures involved in making payments of
all types in our economy.
 A discipline concerned with identifying,
evaluating and managing resources and uses of
cash in order to increase the value of business
enterprise to its present owners.
Financial Management
 It covers the planning, organizing, leading and
controlling of all the financial activities of an
organization.
 Manages the funds of organization which
includes day-to-day operations and investment
decisions.
Branches of Finance (Divided into 3 subcategories)
1. Public Finance
It deals with the collection of taxes and
budget allocation for programs designed to
benefit the general public and the
production and distribution of public goods.
2. Personal Finance
It pertains to the younger generation of
income earners. Its more on the personal
financial planning, budgets for short and
long-term needs, creating a savings plan for
contingencies and investing to financial
products which are often intended for
retirement.
3. Corporate Finance / Business Finance
Primarily concerned in the management of
all the financial activities of an enterprise or
a business organization.
• The ultimate goal is to maximize shareholder
value to sound financial planning.
• The following people behind the corporate
finance:
bank employee
financial analyst
head of the accounting department
• The following practiced of corporate finance
in organizations:
1. Accounting Supervisor
Tasked to prepare a cost and benefit
analysis on whether its more costly or
cheaper to purchase a piece of
equipment.
2. Marketing Manager
Meets with the finance officer to discuss how
a new product should be priced before it is
launched in the market.
3. Human Resources Manager
Shows the other members of the
management team how the hiring of
additional manpower will help not only the
productivity but also the impact cost and
profitability.
4. Logistics
Request for new vehicle that will be used for
delivery of goods or other services as tasked.
5. Marketing Officer
Responsible for advertising and promotion of
their products and services.
• Corporate finance is categorized into four
interrelated areas:
1. Financial Markets and Institutions
This area covers banks, insurance
companies, finance companies (nonbank
institutions which offer both short-term
and long-term loans to individuals and
other firms), and other financial
intermediaries.
2. Investment
This area focuses on investment options
and decision made by both individual and
corporate investors.
 An investment is made when the firm
spends some of their funds for
establishing of project. By doing so, the
opportunity to use the funds in other
possible projects is lost.
3. Financial Service
Refers to services offered by organizations
whose line of business is to help individuals
and other organizations manage their
money.
• These organizations include banks,
insurance companies, brokerage firms and
similar companies as they provide
professional guidance and decision making
on how money should be managed in order
to achieve goals.
4. Managerial (Business) Finance
Refers to the provision of money for
commercial use.
• Concerned with the effective use of funds.
• Defined as the procurement and
administration of funds with the view of
achieving the objectives of the business.
 Cash flows (inflow and outflow)
 How to finance the acquisition of assets
and other growth plans
 Which financing options to access when
the supply of cash is deficient
 What to do with the firm’s excess cash
 Optimal inventory levels
 The accounts receivable and accounts
payable management
 How much of the earnings should be
paid to the dividend versus how
reinvested in the firm.
 Whether to merge or to acquire other
firms.
Dividend
 The earnings or profits of corporation
which are distributed among the
stockholders.
 The board of directors are given the wide
discretion in the distribution of dividends.
 Directors are in the best position to

determine the capital needs and the
earning capacity of the firm.
THE RELATIONSHIP BETWEEN ACCOUNTING AND
FINANCE
MANAGERIAL ACCOUNTING
 It is the main feature of finance, it involves
preparation of reports which are intended to
aid the internal users in decision-making.
• Budget
• Cost analysis
• Inventory analysis
• Sales and profit projection
• Risk-return analysis
 Relies heavily on the use of historical data
which is provided by the financial accounting.
FINANCIAL ACCOUNTING
 Keeps track of all the historical transactions of
a business which will then be used in the
preparation of reports intended for the use of
external parties such as government agencies,
investors and creditors.
 They are responsible in the preparation of
financial statements.
PRIMARY ACTVITIES OF FINANCIAL MANAGER
FINANCIAL MANAGERS
1. They are involved in planning wherein they
contribute in identifying goals and objectives,
setting targets and establishing control measures
in order to monitor performance.
2. They are tasked to provide the members of the

top management or board directors with
information that will help them make informed
decisions on matters that involved huge amount of
money.
3. The efficient allocation of resources among
various assets.
ASSETS
These are all the items owned by the firm which
have the monetary value.
Two Kinds of Assets
a. Fixed Assets
 Consist of land, buildings, fixtures and
equipment which are acquired not for resale
but rather intended for use in the operation
the business.
 Aforesaid permanent in character.
b. Current Assets
 Usually made up of cash, accounts, notes
receivable and inventories.
 They are invariably change from one time to
another.
4. Management of money position
 Must be aware of the flow of funds in the firm
each day.
5. Design of financial strategy for raising capital
 Looking for alternative source of funds.
6. Aids the top management in financial
decision- making.

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WORDS of FINANCE

The Major Role of Financial Management and the

Different Individuals Involved

 Directors are in the best position to

2. They are tasked to provide the members of the

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