MAJOR ROLE OF FINANCIAL CAPITAL BUDGETING- what long term
MANAGEMENT AND DIFFERENT investment on a project should the
INDIVIDUALS INVOLVED business/company take on?
FINANCE- can be defined as science CAPITAL STRUCTURE- How should we
and art of managing money (GITMAN pay for our assets? Should we use
& ZUTTER, 2012) debt or equity
FINANCE DECISION- most activities WORKING CAPITAL MANAGEMENT-
involving decisions on where to use How do we manage the day to day
the allowance*money finances of the company?
BUSINESS FINANCE- study of 3. FACTORS THAT INFLUENCE
financing and investment decision on THE MARKET PRICE- group
a business into 2. Management ran
control and external factors
FINANCIAL MANAGEMENT- deals with
that cannot be controlled by
decision the supposed to maximized
the management
the value of shareholder’s wealth
(share of stocks). Financial is a must CONTROLLED UNCONTROLLE
in a business -profitability D EXTERNAL
- Having a Factor
THE ROLES OF FINANCIAL good liquidity -macro-
MANAGEMENT and economic
reasonable conditions
1. FINANCIAL DECISION- involves
leverage -political
the procurement of funds and position stability
their optimal utilization. - dividends -prospects of
BUDGETING- act of estimating the -competent industry where
management the company
revenue and expenses over a period
which affects operates
of time.
the -general
INVESTMENT- utilization of available company’s market
funds operating sentiment
efficiency -flow of foreign
FINANCING (PROCUREMENT OF - coming up funds invested
FUNDS)- determined the appropriate with corporate in the
capital structure of the company and plans that Philippines
to raise funds from dept and equity. improve the stock market
business
DIVEDEND DECLARATION- prospects of
determined when the company the company
should declare dividend
WORKING CAPITAL DECISION- GOAL OF FIANNCIAL MANAGEMENT
concern with the management of
SHAREHOLDER WEALTH
current asset
MAXIMIZATION ( over-all goal) deals
2. FIANACE MANAGEMENT with decisions that are supposed to
DECISION- decision of financial maximize the value of shareholders
manager in term of capital wealth
budgeting, capital structure
ROLES AND FUNCTION OF EACH
and working capital
EMPLOYEE IN A CORPORATE
management of the company
ORGANIZATION STRUCTURE
SHAREHOLDERS- Elect Board of VP FOR MARKETING
directors(one right to vote)
1. Formulating marketing
BOARD OF DIRECTORS- highest strategies and plans
policy making 2. Performing market and
competitor analysis
RESPONSIBILITIES OF BOD
3. Analyzing and evaluating the
1. Setting policies on effectiveness and the cost of
investments, capital structure, marketing methods applied
and dividends policy.
FUNCTION OF A FINANCIAL MANAGER
2. Approving company’s
strategies, goals and budgets FINANCING DECISION
3. Appointing and removing
1. Making decision on how to
members of the top
fund long term investments
management including the
and working capital which
CEO
deals with day to day
4. Determining top management
operations of the company
compensation
2. To determine the appropriate
5. Approving the information and
capital structure of the
other disclosures reported in
company.
the financial statements
` - CAPITAL STRUCTURE- refers
PRESIDENT (CEO)- overseeing the
to how much of your total asset is
operations of a company and
financed by debt and how much is
ensuring that the strategies as
financed by equity
approved by the BDO are
implemented as planned INVESTING DECISION
1. Carries out the decision 1. SHORT TERM INVESTMENT-
making for all functions needed when the company is
2. Representing the company in in an excess cash position.
professional, social and civic Financing tools BUDGETING
activities AND FORECASTING
2. LONG TERM INVESTMENT-
VP FOR ADMINISTRATION
should be supported by a
1. Coordinating the functions of capital budgeting analysis
administration, finance, and which is among the
marketing department responsibilities of a finance
2. Identifying means, process or manager. Capital Budgeting
systems that will minimize the analysis is a tool to assess
operating cost of the company wether the investment will be
(Cayanan, A. 2015) profitable in a long run
VP FOR PRODUCTION The financial system comes in
1. Ensuring the production meets when the lender of funds was not
the customer demands able to find someone to invest his
2. Identifying production money, and the borrower cannot
technology/ process that get funds to start his expansion.
minimizes production cost and
make the company cost Financial Institutions are
intermediaries that channel the
savings of individuals, businesses, Preferred stock has a priority over a
and governments into loans or common stock in terms of claims
investments over the assets of a company.
Financial Instruments are monetary Moreover, preferred stockholders
contracts between parties. They have also a priority over common
can be created, traded, modified stockholders in cash dividend
and settled. They can be cash, declaration. Dividends to preferred
evidence of an ownership in an stockholders are usually in fixed
entity or a contractual right to rate.
receive or deliver in the form of
•Holders of Common Stock on the
currency, debt and equity. Basic
other hand are the real owners of
examples are cash, cheques, bonds
the company. If the company's
and securities(Stocks).
growth is spurring, the common
Debt instruments generally have stockholders will benefit the
fixed returns due to fixed interest growth. Moreover, during a
rates. Examples of debt profitable period for which a
instruments are as follows: company may decide to declare
Treasury bonds and Treasury Bills higher dividends, preferred stock
are issued by the Philippine will receive a fixed dividend rate
government. These bonds and bills while common stockholders receive
have usually low interest rates and all the excess
have very low risk of default since
Financial Market is a dedicated
the government assures that these
marketplace/avenue for the trading
will be paid.
of securities, such as stocks, bonds,
currencies, bills and cheque.
Corporate Bonds are issued by
publicly listed companies. These
Financial Markets are classified into
bonds usually have higher interest
comparative groups
rates than Treasury bonds.
: 1. Primary Market vs. Secondary
However, these bonds are not risk
Market
free. If the company which issued
• To raise money, users of funds
the bonds goes bankrupt, the
will go to a primary market to issue
holder of the bonds will no longer
new securities (either stocks or
receive any return from their
bonds) through a public offering or
investment and even their principal
a private placement.
investment can be wiped out.
• The sale of new securities to the
Equity Instruments generally have general public is referred to as a
varied returns based on the public offering and the first offering
performance of the issuing of stock is called initial public
company. Returns from equity offering. The sale of new securities
instruments come from either to one investor or a group of
dividends or stock price investors is referred to as a private
appreciation. The following are placement.
types of equity instruments:
- However, suppliers of funds
or the holders of the
securities may decide to sell
the securities that have
previously been purchased.
The sale of previously owned
securities takes place in the
secondary market. • The
Philippine Stock Exchange
(PSE) is both a primary and
secondary market.
2. Money Market vs. Capital Market
•Money market is a venue wherein
securities with short-term maturities
(1year or less) are sold. They are
created because some individuals,
businesses, governments, and
financial institutions have
temporarily idle funds that they wish
to invest in relatively safe, interest-
bearing assets. • On the other hand,
securities with longer-term maturities
are sold in the Capital Market. The
key capital market securities are
bonds (long- term debt) and both
common stock and preferred stock
(equity or ownership).
