Module in Financial

Management (FINMGT)
By: GEOFREY A. RIVERA, CPA, MBA
 Preface

Financial Management is an essential part of the economic and non-economic

activities which leads to decide the efficient procurement and utilization of financial
resources to maximization of profit and wealth as well as return maximization of
shareholders . Business concern needs finance to meet their requirements in the economic
world. Any kind of business activity depends on the finance. Nowadays, all the business
activities are concerned with the economic activities and very particular to earning profit
and wealth maximization. Thus, proper managing the financial resources, it is the lifeblood
of business organization.
The entire instructional materials in financial management composed of nine modules
which is divided into four parts:
I. Learning Objective;
II. Introduction;
III. Lesson; and
IV. Learning Activities.

The main topics in nine modules are as follows:

Module 1: Overview of Financial Management;
Module 2: Overview of Financial Statements;
Module 3: Analysis of Financial Statements;
Module 4: Financial Forecasting, Corporate Planning and Budgeting;
Module 5: Time Value of Money Analysis;
Module 6: Working Capital Management;
Module 8: Cash
Module 7: Receivable Management; and
Management;
Module 9: Inventory Management.
 Table of Contents
Page
MODULE 1: OVERVIEW OF FINANCIAL MANAGEMENT
I. Learning Objectives 1
II. Introduction 1
III. Lesson
Meaning of Financial Management 1
Scope of Financial Management 1
Objectives of Financial Management 2
Functions of Financial Management 2
Goals of Financial Management 3
IV.2:
MODULE Learning Activities
OVERVIEW OF FINANCIAL STATEMENTS 4
I. Learning Objectives 5
II. Introduction 5
III. Lesson
Definition of Financial Statements 5
Users of Financial Statements and their needs 5
Objectives of Financial Statements 7
A complete set of financial statements 7
MODULE 3:Learning
ANALYSIS Activities
OF FINANCIAL STATEMENTS 9
I. Learning Objectives 10
II. Introduction 10
III. Lesson
Definition of Financial Statements Analysis 10
Purpose of Financial Statement Analysis 10
Objectives of Financial Statement Analysis 11
Commonly Used Tools of Financial Statement Analysis 11
Financial Ratio Analysis 12
i. Evaluation of Short-Term Solvency 12
ii. Evaluation of Long-Term Solvency 13
iii. Evaluation of Operational Efficiency 14
iv. Evaluation of Profitability 14
v. Evaluation
Vertical of Investment Analysis
Analysis 15
Comprehensive Illustration
Horizontal Analysis 15
Financial Ratios 18
Limitations of Financial Statement Analysis 20
IV. Learning Activities 21
23
24
MODULE 4: FINANCIAL FORECASTING, CORPORATE PLANNING,
and BUDGETING
I. Learning Objectives 25
II. Introduction 25
III. Lesson
Corporate Planning 25
Budgeting 25
Purpose and Objectives of Budgeting 25
Budget Overview 26
Master Budget
Preparation of Master Budget 26
IV. Learning Activities 27
MODULE 5: TIME VALUE of MONEY ANALYSIS 32
I. Learning Objectives 35
II. Introduction 35
III. Lesson
Time Value of Money 35
Future Value of Single Amount 35
Future Value of Several Amount 37
Present Value with Single Amount or Present Value of P1 38
Present Value with Several Amount or Present Value of Ordinary 38
Annuity
Present Value with Several Amount or Present Value of Annuity 39
Due
Perpetuities 40
IV. Learning Activities 41
MODULE 6: WORKING CAPITAL MANAGEMENT
I. Learning Objectives 43
II. Introduction 43
III. Lesson
Working Capital Defined 43
Concept of Working Capital 43
Sources of Working Capital 44
Types of Working Capital 44
Needs of Working Capital
44
Factors determining Working Capital Requirements
45
Estimation of Working Capital
46
Working Capital Management Policy
47
Determining the Finance Mix
48
IV.7:
MODULE Learning Activities
CASH MANAGEMENT
48
 I. Learning Objectives 50
II. Introduction 50
III. Lesson
Cash Management Defined 50
Roles and Functions of Cash Management 50
Objectives of Cash Management 51
Basic Principles of Cash Management 51
Cash Management Strategies 51
Different Types of Cash Management Tools 51
Limitations of Cash Management 51
Advantages and Disadvantages of Cash Management 52
Determining the Target Cash Balance 52
Optimal Cash Balance using Baumol Model
Cash Break-Even Point 52
Optimal Cash Balance using Miller-Orr Model
53
Other Factors Influencing the Target Cash Balance
54
Cash Management Techniques
54
IV.8:
MODULE Learning ActivitiesMANAGEMENT
RECEIVABLE
55
I. Learning Objectives 58
II. Introduction 56
58
III. Lesson
Objectives of Accounts Receivable Management 58
Credit Policy 58
Cost Associated with Investment in Accounts Receivable 59
Summary of Trade-Offs in Credit Collection Policies 59
IV.9:
MODULE Learning Activities
INVENTORY MANAGEMENT 60
I. Learning Objectives 61
II. Introduction 61
III. Lesson
Inventory Management 61
Importance of Inventory Management 61
Challenges faced in Inventory Management 62
Techniques of Inventory Control 62
i. Economic Order Quantity 62
ii. Fixing Levels (Quantity Control) 64
a.
b. Maximum Stock Level
Minimum Stock Level 64
c. Re-order Point 65
IV. Learning Activities 65
66