LESSON1: INTRODUCTION TO FINANCIAL
MANAGEMENT
What is Finance?
The higher the risk the higher the return
Finance can be defined as the science and art of
managing money (Gitman & Zutter, 2013).
Finance is both a science and art of correct application
of economic accounting concepts and principles that
define the system, structure, and process of
management, allocation, and utilization of financial
resources, and expenditures.
Finance and Business
The field of finance is broad and dynamic It influences
everything that firms do, from hiring personnel to
building factories to launching new advertising
campaigns.
Even if you do not see yourself pursuing a career in
finance, you’ll find that understanding a few key ideas
in finance will help make you a smarter consumer and a
wiser investor with your own money.
Finance
At the personal level, finance is concerned with an
individual's decisions about how much of their earnings
they spend, how much they save, and how they invest
their savings.
In a business context, finance involves the same types
of decisions; how firms raise money from investors,
how firms invest money in an attempt to earn a profit,
and how they decide whether to reinvest profits in the
business or distribute them back to investors.
Finance and Financial Management
Finance may also be defined as the science of managing
and creating money, administration, and operations of
institutions like banks, investment companies,
cooperatives, lending groups that facilitate credits, and
a unit or department that directs the organization's
assets, liabilities, and equities (Gitman, Joehnk,
Billengsley, Besley &Brigham 2017)
Financial Management is the broadest of the Money
and Capital markets, including the investment area, and
the one with the most job opportunities.
● Job opportunities; making decisions regarding
plant expansions, financing, and dividend
decisions. Some of the career opportunities in
the field of finance are Financial Analyst, Fund
Manager, Stock Broker, Banker, Bond Dealer,
Treasury or Trust Manager, Investment
Researcher, Business Consultant, Forex Trader,
Trust Agent, Risk Management Associate,
Finance Officer, and Credit Appraiser.
Two Types of Financial Market
1. Money Market
- The money market is created by a
financial relationship created between
suppliers and users of short-term funds.
(not more than 1 year) low risk
2. Capital Market
- A market that enables suppliers and
users of long-term funds to make
transactions. (more than 1 year) high
risk
● Bonds are long-term debt
instruments businesses and the
government uses to raise large
sums of money, generally from
a diverse group of tenders.
● Common stocks are units of
ownership interest or equity in
a corporation
● Preferred stock is a special form
of ownership with features of
both a bond and common
stock.
Career Opportunities in Finance
1. Financial Services- is the area of finance
concerned with the design and delivery of
 advice and financial products to individuals, 3. Mutual Funds- are owned by investment
businesses, and governments. It involves companies that enable small investors to enjoy
various interesting career opportunities in the benefits of investing in a diversified
banking, personal financial planning, portfolio of securities purchased on their behalf
investments, real estate, and insurance. by professional investment managers.
2. Managerial Finance- is concerned with the 4.
duties of the financial manager working in a
business. The financial manager administers the
financial affairs of all types of businesses-private
and public, large and small, profit-seeking, and
not-for-profit. They perform such varied tasks
as developing a financial plan or budget,
extending credit to consumers, evaluating large Pension Funds- financial institutions that receive
expenditures, and raising money to fund the payments from employees and invest the
firm’s operations. proceeds on their behalf.
Three Branches of Finance

1. Personal Finance- deals with the individual's 5.

investment decisions
2. Public Finance- deals with the efficient
management of public funds.
3. Corporate Finance- deals with the management
of the firm’s resources.

Financial Institutions Other financial institutions include pension funds

1. Commercial Banks- individual deposits funds at
commercial banks, which use the deposited
funds to provide commercial loans to firms and
personal loans to individuals and purchase debt
securities issued by firms or government
agencies.
2.
like Government Service Insurance System
(GSIS) and Social Security System (SSS), unit
investment trust fund (UITF), investment banks,
and credit unions, among others.
Corporation
A corporation is an artificial being created by operation
of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law
or incident to its existence (The Corporation Code of the
Philippines, Sec.

Insurance Companies- individuals purchase

insurance (life, property and casualty, and
health) protection with insurance premiums.
The insurance companies pool these payments
and invest the proceeds in various securities
until the funds are needed to pay off claims by
policyholders.

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 - Conducting or directing research that
will allow the company to identify new
Roles of Each Position Identified marketing opportunities, e.g variants of
the existing products/ services already
Note: (refer to the reference below) offered in the market
- Promoting good relationships with
● Shareholders- the shareholders elect the Board customers and distributors.
of Directors (BOD) ● VP for Production
● Board of Directors- is the highest policy-making - Ensuring production meets customer
body in a corporation demands
● President (Chief executive Officer)- the role of - Identifying production
a president in a corporation may vary from one technology/process that minimizes
company to another. production cost and makes the
● VP for Marketing company cost competitive.
- Formulating marketing strategies and - Coming up with a production plan that
plans. maximizes the utilization of the
- Directing and coordinating company company’s production facilities.
sales - Identifying adequate and cheap raw
- Performing market and competitor material suppliers.
analysis ● VP for Administration
- Analyzing and evaluating the - Coordinating the functions of
effectiveness and cost of marketing administration, finance, and marketing
methods applied. departments.
- Assisting other departments in hiring
employees.
- Providing assistance in payroll
preparation, payment of vendors, and
collection of receivables.

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 - Determining the location and the OPEX- operation expense
maximum amount of office space
needed by the company.
- Identifying means, processes, or
systems that will minimize the
operating costs of the company.
● VP for Finance
- (as a Financial Manager) is to determine LESSON 2: REVIEW OF FINANCIAL STATEMENTS
the appropriate capital structure of the PREPARATION (INCOME STATEMENT)
company. Capital structure refers to
how much of your total assets are
financed by debt and how much is
financed by equity.
- Operating Decisions- deals with the
daily operations of the company
- Dividend Policies- recall that cash
dividends are paid by corporations to
existing shareholdings in the company
as a return on their investment.
- Investments
● Short-term investment
decisions are needed when the
company is in an excess cash
position
● Long-term investments should
be supported by a capital
budgeting analysis which is
among the responsibilities of a
finance manager.

The Main Goal of the Firm

● The primary goal for management decisions is

stockholder wealth maximization.

The Other Goals of the Firm

● Social Responsibility - the concept that

businesses should be actively concerned with
the welfare of society at large.
● Ethical Responsibility- a company's attitude and
conduct toward its employees, customers,
community, and stockholders.

Glossary of Terms (mentioned in the class)

1. Smart Consumer
2. Wise Investor

Income Statement

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Lesson 3: Financial Statements Preparation

(Statement of Changes in Shareholder’s Equity)

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