Republic of the Philippines

Department of Education
Region III
SCHOOLS DIVISION OF ZAMBALES
Zone 6, Iba, Zambales
Tel./Fax No. (047) 602 1391
E-mail Address: zambales@deped.gov.ph
website: www.depedzambales.ph

Name: ______________________________________ Grade/Section__________

School: _____________________________________ Date: __________________

LEARNING ACTIVITY SHEET

BUSINESS FINANCE
INTRODUCTION TO FINANCIAL MANAGEMENT
Quarter 1 - Week 1

I. Introduction

Before the COVID-19 pandemic, during your last school year

2019-2020, recall how much allowance you have from your parents. How
much allowance you have daily? Weekly? How much money goes to your
transportations, to your foods, to your computer games, to your cellphone
load and other school expenses? Do you have savings out of the allowance
from your parents? In this lesson you will understand the importance of
finance.

As a business student, you will find out the major role of financial
management, different individuals involved, and realize the flow of funds
within an organization.

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II. Learning Competency

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 - ABM_BF12-IIIa-5

III. Objectives:

At the end of this learning activity sheet, you are expected to:
1. distinguish the key points in a corporate organization and classify their
roles;
2. recognize the overall objective of management;
3. analyze the role of the financial manager.

IV. Discussion

As a business student, do you know what is the meaning of finance?

How about budgeting, investment, and sources of funds? Are you familiar
with those words? I would like you to know first their meaning, so that you
will be familiar on what is business finance.

 Finance can be defined as the science and art of managing money.

(Gitman & Zutter, 2012)

 Budgeting is the act of estimating revenue and expenses over a period.

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 Investments come in many forms that will generate income or
appreciate in the future.

 Sources of funds people or institutions that will give you the money
you need.

Now that you are familiar with those words, I will now proceed my
lesson about the organization existing in the company and their important
roles.

The Corporate Organization Structure

This corporate organization structure informs that this particular set of
people play an important role in the decision making of the company.

From the diagram presented, emphasize that 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 does the same for the interest of the
shareholders, it follows that the goal of each individual in a corporate
organization should have an objective of shareholders’ wealth
maximization.

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I will briefly discuss the role of each position identified.

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 the 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

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.

Although the president carries out the decision making for all
functions, it would be difficult for him/her to do this alone. The president
cannot manage the company on his own, especially when the corporation

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has become too big. To assist him are the vice presidents of different
functional areas: finance, marketing, production, and administration.

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 to 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, 2015)

VP for Production: The following are among the responsibilities of VP for

Production:
1. Ensuring production meets customer demands.
2. Identifying production technology/process that minimizes production
cost and make the company cost competitive.
3. Coming up with a production plan that maximizes the utilization of the
company’s production facilities.
4. Identifying adequate and cheap raw material suppliers. (Cayanan, 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.

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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. Identifying means, processes, or systems that will
minimize the operating costs of the company. (Cayanan, 2015)

What did you notice in my discussion? Where is the VP for Finance? There
are only three VP that was discussed. Are you not wondering why VP for
Finance is not on the list? As I continue my lesson, please listen attentively
on what are the responsibilities of VP for Finance.

Functions of a Financial Manager

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

- Financing
- Investing
- Operating
- Dividend Policies

Recall from the previous session 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:

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 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 are
financed by 60% debt and 40% equity. Accordingly, the capital structure
is 60% debt and 40% equity.

Recall that, previously, you discussed investing as 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 use of Financial Planning tools such as budgeting and forecasting.
Moreover, the company should choose which type of investment should it
invest in that would provide a most optimal risk and return trade off.

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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.

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 long-term loans. Hence, this would lead to a lower financing cost.
Suppliers’ credit 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.

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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.

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.

On the other hand, a company which has 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
generally 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 publicly listed companies
such as PLDT, Globe Telecom, and Petron (information as of 2014).

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V. Activities

A. True of False
Direction: Write True of the statement is correct, write False if the
statement is incorrect. Write your answer in your activity notebook.

1. Dividend payments change directly with changes in earnings per share.

2. To achieve the goal of profit maximization for each alternative being
considered, the financial manager would select the one that is expected to
result in the highest monetary return.
3. High cash flow is generally associated with a higher share price whereas
higher risk tends to result in a lower share price.
4. An increase in firm risk tends to result in a higher share price since the
stockholder must be compensated for the greater risk.
5. Stockholders expect to earn higher rates of return on investments of
lower risk and lower rates of return on investments of higher risk.
6. When considering each financial decision alternative or possible action
in terms of its impact on the share price of the firm's stock, financial
managers should accept only those actions that are expected to increase
the firm's profitability.
7. Risk and the magnitude and timing of cash flows are the key
determinants of share price, which represents the wealth of the owners in
the firm.
8. The wealth of corporate owners is measured by the share price of the
stock.
9. When considering each financial decision alternative or possible action
in terms of its impact on the share price of the firm's stock, financial
managers should accept only those actions that are expected to maximize
shareholder value.
10. Short term investment decisions are needed when the company is in
an excess cash position.

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A. Multiple Choice
Direction: Choose the letter of the correct answer. Write your answer
in your activity notebook.

1. The wealth of the owners of a corporation is represented by

a. profits b. earnings per share c. share value d. cash flow
2. The primary goal of the financial manager is
a. minimizing risk b. maximizing profit c. maximizing wealth
d. minimizing return.
3. Wealth maximization as the goal of the firm implies enhancing the
wealth of
a. the Board of Directors b. the firm's employees c. the federal
government d. the firm's stockholders
4. The goal of profit maximization would result in priority for
a. cash flows available to stockholders b. risk of the investment
c. earnings per share d. timing of the returns
5. The wealth of the owners of a corporation is represented by
a. profits b. earnings per share c. share value d. cash flow
6. 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
7. 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
8. 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

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9. 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
10. 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

B. Fill in the Blank

Direction: Identify the following. Write your answer in your activity
notebook.

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.
6. The ________________ responsibility is to identify adequate and cheap
raw material suppliers.
7. The ________________ responsibility is to analyze and evaluate the
effectiveness and cost of marketing methods applied.

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 8. The _________________ responsibility is to determine top
management’s compensation.
9. The _________________ responsibility is to oversee the operations of a
company and ensure that the strategies as approved by the board
are implemented as planned.
10. The functions of ____________ are financing, investing, operating
and dividend policies

C. Matching Type
Direction: Match column A to column B. Choose the correct letter.
Write your answer in your activity notebook.

Column A
1. Short term investment
2. Long term investment
3. Financial Manager
4. Shareholders
5. Dividend Policies
6. Investing
7. Operating decisions
Column B
a. Each share held is equal to one
voting right
b. Either short term or long-term
investment
c. 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.).
d. Performing market and competitor
analysis
e. Coming up with a production plan
that maximizes the utilization of the
company’s production facilities.
f. It is the role of a financial manager
to determine when the company
should declare cash dividends
g. decisions are needed when the
company is in an excess cash position

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8. Financing
9. VP for Production
10. VP for Marketing
h. Four functions financing, investing,
operating and dividend policies
i. The company has a choice on
whether to finance working capital
needs by long term or short-term
sources
j. Capital budgeting analysis is a tool
to assess whether the investment will
be profitable in the long run

D. Crossword Puzzle
Direction: Analyze the puzzle. Write your answer in your activity
notebook.

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 B. Assessment
Direction: Enumerate the following. Write your answer in your activity
notebook.

1 – 7 Base on the Corporate Organization Structure, give the set of

people play an important role in the organization.

8 – 10 What are the functions of Financial Manager?

C. Reflection
Direction: Fill in each blank with the right word/words in the box below.
Write your answer in your activity notebook.

As a business student, it is very important to learn and be familiar

with the words that are related to business. (1)_____________ can be defined
as the science and art of managing money. (2)_______________ is the act of
estimating revenue and expenses over a period. (3) _______________ come
in many forms that will generate income or appreciate in the future. In
time that you need money, there are people or institutions that will give
you the money you need, and that is what you call (4) _____________.
(5) _______________ they elect the Board of Directors (BOD). Each share
held is equal to one voting right. (6) _____________ is the highest policy
making body in a corporation. Performing all areas of management:
planning, organizing, staffing, directing, and controlling is one of the
responsibilities of the (7) __________. While (8)___________, one of the
responsibilities is assisting other departments in hiring employees. (9)
______________, one of the responsibilities is formulating marketing
strategies and plans. Coming up with a production plan that maximizes

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the utilization of the company’s production facilities is one responsibility
of (10)______________.

Finance Investments VP for Marketing VP for Administration

Budgeting Board of Directors VP for Production
President Shareholders Sources of funds

D. References

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 August 8, 2020

Prepared by:

MARIA AMOR L. AGUDO

Teacher III
SNHS - Senior High School, Subic District

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