ABM 004 - REVIEWER 1

Defining Finance and Identifying who are Responsible for

Financial Management within the Organization

Finance - a branch of economics concerned with resource allocation as well

as resource management, resource acquisition and investment.
Finance 3 distinct categories: public finance, corporate finance and
personal finance.
ABM 004 - REVIEWER 2

Financial management refers to the efficient and effective management of

money (funds) in such a manner as to accomplish the objectives of the
organization.
- These decisions will ultimately affect the markets perception of the
company and influence the share of price.
- The goal of financial management is to maximize company’s wealth.
POSITIONS IN THE FINANCE DEPARTMENT
1. Chief Financial Officer (CFO) - provides both operational and
programmatic support to the organization. The CFO supervises the finance
unit and is the chief financial spokesperson for the organization. The CFO
reports directly to the President/Chief Executive Officer (CEO) and
directly assists the Chief Operating Officer (COO) on all strategic and
tactical matters as they relate to budget management, cost benefit
analysis, forecasting needs and the securing of new funding.
2. Comptroller - is in charge of overseeing the daily accounting
operations of a business. In a small business, the comptroller may be
responsible for doing all the accounting tasks for the business.
3. Treasurer - is responsible for corporate liquidity, investments, and
risk management related to the company's financial activities.
4. Internal auditors - work within businesses and organizations to monitor
and evaluate how well risks are being managed, the business is being
governed and internal processes are working.
ABM 004 - REVIEWER 3

Describing the Functions and Roles of Finance Manager

Functions of Financial Manager

Financing - includes making decisions on how to fund long term investment
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.) This also involves determining the appropriate
capital structure of the company. Capital structure refers to how much of
your total assets are financed by debt and how much is financed by equity.
Investing - a finance manager function that includes choosing which type
of investment should it invest in that would secure the best profits.
Investments may be short or long term.
Operating - deals with the daily operations of the company. It also
involves determining how to finance working capital account such as
accounts receivable and inventories.
Dividend Policies - Cash dividends are paid by corporations to existing
shareholders based on their shareholdings in the company as a return on
their investment. The role of a financial manager is to determine when the
company should declare cash dividends.
ABM 004 - REVIEWER 4

Introducing the Concept of Financial System

Financial System - is the system that enable lenders and borrowers to
exchange fund. It covers the financial transactions and the exchange of
money between investors, lenders and borrowers.
Financial Markets - organized forums in which the suppliers and users of
various types of funds can make transactions directly.
Financial Institutions - intermediaries that channel the savings of
individuals, businesses, and governments into loans or investments.
Private Placements - the sale of a new security directly to an investor or
group of
investors
Financial Instruments - is a real or a virtual document representing a
legal agreement involving some sort-of monetary value. These can be
securities like corporate bonds or equity like shares of stocks.
Suppliers of Fund/Lenders - the holders of financial asset
Demanders of Fund/Borrowers - the users of financial asset or the makers
of financial liabilities and equity instruments.
Method of Transfering Funds:
Direct Finance - refers to lending by ultimate borrowers with no
intermediary
Indirect Finance - refers to lending by an ultimate lender to a financial
intermediary that then relends to ultimate borrowers.
ABM 004 - REVIEWER 5

Identifying the Types of Financial Markets, Financial

Instruments and Financial Institutions

Financial Instruments
- When a financial instrument is issued, it gives rise to a financial
asset on one hand and a financial liability or equity instrument on the
other.
Financial Assets:
- Cash
- An equity instrument of another entity.
- A contractual right to receive cash or another financial asset from
another entity.
- Notes Receivable
- Loans Receivable
- Investments in Stocks
- Investments in Bonds
Financial Liability
- Notes Payable
- Loans Payable
- Bonds Payable

Debt and Equity Instrument:

Debt Instrument- generally has fixed returns due to fixed interest rates.
- Bonds - an instrument of indebtedness.
- Treasury Bond and Treasury Bills - issued by the Philippine government
- Corporate Bonds - issued by the publicly listed companies.
ABM 004 - REVIEWER 6

Equity Instruments - have varied returns based on the performance of the

issuing company.
- Stocks - an instrument of ownership.
- Preferred Stocks - has priority over a common stock in terms of claims
over the asset of a company.
- Common stocks - the holders of these are the real owners of the company.
If the company’s growth is spurring, the common stockholders will benefit
on the growth.
Financial Market
Money Market are a venue wherein securities with short-term maturities (1
year or less) are sold.
Capital Market - securities with long term maturities are sold. The key
capital market securities are bonds and both common stock and preferred
stocks.
Primary Market - Financial market in which securities are initially issued;
the only market in which the issuer is directly involved in the
transaction.
Secondary Market - Financial market in which preowned securities (those
that are not new issues) are traded.
Financial Institutions
Commercial Banks - individuals deposit funds at commercial banks, which
use the deposited funds to provide commercial loans to firms and personal
loans to individuals.
Insurance Companies - pool the payments of individuals and invest the
proceeds in various securities until the funds are needed to pay off
claims by policyholders.
ABM 004 - REVIEWER 7

Mutual Funds - owned by investment companies which enable small investors

to enjoy the benefits of investing in a diversified portfolio of
securities purchased on their behalf by professional investment managers.
Pension Funds - receive payments from employees and invest the proceeds on
their behalf.
Other Financial Institutions - include pension funds like Government
Service Insurance System(GSIS) and Social Security System(SSS), investment
banks, credit unions, among others.

Preparing Horizontal Analysis for Financial Statements

Horizontal analysis (also known as trend analysis) is a financial

statement analysis technique that shows changes in the amounts of
corresponding financial statement items over a period of time. It is a
useful tool to evaluate the trend situations.
ABM 004 - REVIEWER 8

Preparing Vertical Analysis for Financial Statements

Vertical analysis (also known as common-size analysis) is a popular method

of financial statement analysis that shows each item on a statement as a
percentage of a base figure within the statement.