FINANCIAL MANAGEMENT

ASSIGNMENT #1

VANNY JOYCE G. BALUYUT

PSU-MBA

1. Function of a Finance Manager.

Financial managers are responsible for the financial health of an organization.

They produce financial reports, direct investment activities, and develop strategies
and plans for the long-term financial goals of their organization. Financial
managers typically:

 Prepare financial statements, business activity reports, and forecasts,

 Monitor financial details to ensure that legal requirements are met,
 Supervise employees who do financial reporting and budgeting,
 Review company financial reports and seek ways to reduce costs,
 Analyze market trends to find opportunities for expansion or for acquiring
other companies,
 Help management make financial decisions.

The role of the financial manager, particularly in business, is changing in

response to technological advances that have significantly reduced the amount
of time it takes to produce financial reports. Financial managers’ main
responsibility used to be monitoring a company’s finances, but they now do more
data analysis and advise senior managers on ideas to maximize profits. They
often work on teams, acting as business advisors to top executives. (Introduction
to Financial Management – Lumen Learning)

2. Define Financial Management.

Financial Management means planning, organizing, directing and controlling the

financial activities such as procurement and utilization of funds of the enterprise.
It means applying general management principles to financial resources of the
enterprise.

Scope/Elements:
 Investment decisions includes investment in fixed assets (called as capital
budgeting). Investment in current assets are also a part of investment
decisions called as working capital decisions.

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  Financial decisions - They relate to the raising of finance from various
resources which will depend upon decision on type of source, period of
financing, cost of financing and the returns thereby.
 Dividend decision - The finance manager has to take decision with
regards to the net profit distribution. Net profits are generally divided into
two:
 Dividend for shareholders- Dividend and the rate of it has to be decided.
 Retained profits- Amount of retained profits has to be finalized which will
depend upon expansion and diversification plans of the enterprise.
(managementstudyguide.com)

3. What is the purpose of Financial Management?

The purpose of financial management is profit maximization and wealth

maximization. Profit maximization as its name signifies refers that the profit of the
firm should be increased while wealth maximization aims at accelerating the
worth of the entity. (Guthmann and Dougall, 1955)

Profit Maximization is the capability of the firm in producing maximum output with
the limited input, or it uses minimum input for producing stated output. It is
termed as the foremost objective of the company. Wealth maximizsation is the
ability of a company to increase the market value of its common stock over time.
The market value of the firm is based on many factors like their goodwill, sales,
services, quality of products, etc. (keydifferences.com)

4. Name at least 5 principles in Finance.

a. The Principle of Risk & Return

This principle indicates that investors have to conscious both risk and return,
because higher the risk higher the rates of return and lower the risk, lower
the rates of return. For business financing, we have to compare the return
with risk. To ensure optimum rates of return investors need to measure risk
and return by both direct measurement and relative measurement.

b. Time Value of Money

This principle is concerned with the value of money, that value of money is
decreased when time pass. The value of dollar 1 of the present time is more
than the value of dollar 1 after some time or years. So before investing or
taking fund, we have to think about the inflation rate of the economy and

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 required rate of return must be more than the inflation rate so that return can
compensate the loss incurred by the inflation.

c. Cash Flow Principle

This principle mainly talk about the cash inflow and outflow, more cash inflow
in the earlier period is preferable than later cash flow by the investors. This
principle also follows the time value principle that’s why it prefers earlier
more benefit rather than later years benefits.

d. Profitability & Liquidity Principle

This principle is very important from the investor’s perspective because the
investor has to ensure both profitability and liquidity. Liquidity indicates the
marketability of the investment i.e. how much easy to get cash by selling the
investment. On the other hand, investors have to invest in a way that can
ensure the maximization of profit with a moderate or lower level of risk.

e. Principles of diversity

This principle helps to minimize the risk by building an optimum portfolio.

Never put all your eggs in the same basket because if it falls then all of your
eggs will break, so put eggs by separating in a different basket so that your
risk can be minimized. To ensure this principle investors have to invest in
risk-free investment and some risky investment so that ultimately risk can be
lower. Diversification of investment ensures minimization of risk.
(ordnur.com)

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