LESSON 1: OVERVIEW OF

FINANCIAL STATEMENT
According to Gitman and Zutter (2012), “FINANCE
can be defined as the science and art of managing
money. At the personal level, finance is concerned
with individuals’ 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 is a process that includes raising
money or resources and allocating them
effectively and efficiently to achieve the firm’s
goals or objectives. It includes financial
management, the study of investment, and the
study of institutions and markets. MONEY is
needed by the firm to continue its operations,
expansion, replacement of new machinery and
equipment, payments, acquisition of new
investment, and internal growth.
According to Cayanan and Borja (2017),
“Financial management deals with decisions that
are supposed to maximize the value of
shareholders’ wealth.” Financial management is
a decision-making process that includes planning,
analysis, utilization, and acquisition of funds in
order to achieve the desired goals of the
business. Risk and return are part of managing a
business. A thorough plan and analysis should be
done to avoid or reduce risks and to have a good
return.
ROLES OF FINANCIAL MANAGEMENT

1. FINANCIAL DECISIONS AND CONTROLS

Financial management and financial
managers play a crucial role in making financial
decisions and exercising control over finances in
the organization. They make use of techniques
like ratio analysis, financial forecasting, profit and
loss analysis, etc.
2. FINANCIAL PLANNING
The finance managers are responsible for
the planning of financial activities and resources
in the organization. To this end, they use
available data to understand the needs and
priorities of the organization, as well as the
overall economic situation and make plans and
budgets for the same purpose.
3. CAPITAL MANAGEMENT
It is the responsibility of financial
management to estimate the capital
requirements of the organization from
time to time, determines the capital
structure and composition and makes the
choice of source of funding for the capital
needs.
4. ALLOCATION AND UTILIZATION
OF FINANCIAL RESOURCES
Financial management ensures that
all financial resources of the
organizations are used and invested
effectively and efficiently so that the
organization is profitable, sustainable and
viable in the long-run.
5. CASH FLOW MANAGEMENT
It is extremely important for organizations
to have sufficient working capital and cash
flow to meet their operational expenses and
emergencies. Financial management tracks
account payable and receivable to ensure
there is sufficient cash flow available at all
times
6. DISPOSAL OF SURPLUS
The decisions on how the surplus or
profits of the organizations is utilized is
taken by the financial managers of the
organizations. They decide if dividends
should be distributed and how much as well
as the proportion of profits that must be
retained and ploughed back into the
business
7. FINANCIAL REPORTING
Financial management
maintains all necessary reports related
to the finance of the organization and
uses this as the database for
forecasting and planning financial
activities
8. RISK MANAGEMENT
Sound financial management prepares
the organization to forecast risks, put in
place mitigation plans as well as to meet
unforeseen risks and emergencies
effectively.
The GOAL of financial management is to
maximize the wealth of the shareholders. Its aim is
to make money and add value to the investors and
to the firm. Investors buy stocks because they
want something in return. More investors will
create more funds and more jobs. Maximizing the
shareholders’ wealth is not that easy; a lot of
things should be considered, and they need to
satisfy different stakeholders. To gain profit, the
business should make customers happy. They
must treat their employees well like customers to
become more productive and trustworthy.
They should pay their financial obligations with
their creditors and suppliers on time so they can
establish a good relationship. They must pay
their financial obligation on time. Firms must
also pay attention to the government and
environmental issues. They must comply with
the government and legal requirements. They
must see that they will not have a bad effect on
the environment.
FINANCIAL MANAGEMENT includes
planning, organizing, controlling, and
directing to acquire and utilize the funds
or resources effectively and efficiently.
Every activity of the finance manager
should be according to plan. It should be
organized, controlled, monitored, and
evaluated.
What’s In?
DIRECTIONS: Respond to the given situation.

Your mobile phone broke. You believe

that you badly need it for your studies,
but your money is insufficient for the
repair fee. Where will you get the fund
needed?
Sources of finance can be INTERNAL or
EXTERNAL. An internal source of finance
does not increase the debts of the
business-like profit, savings, and sale of
unwanted assets while, an external
source of finance is provided by people or
institutions outside the business that
creates debt and requires payment like
loans.
WRITTEN WORK 1:
Directions: Visualize your dream business and
write your thoughts/ideas on the given questions.
WHAT IS IT?
• The SHAREHOLDERS elect the Board of Directors
(BOD). Each share is equal to one voting right. They buy
shares to earn a profit in a form of dividend.

• The BOARD OF DIRECTORS is the highest position in

a corporation. Some of their responsibilities are providing
direction of the company, setting the policies on
investments, approving the company’s strategies, goals, and
budgets, appointing, and removing members of the top
management.
• The PRESIDENT supervises the company’s
operations and ensures that the strategies are
well executed and planned. He / She also
performs all areas of management such as
planning, organizing, staffing, directing,
controlling, and evaluating.
• Some of the responsibilities of VICE
PRESIDENT FOR SALES AND MARKETING
are formulating business strategies and plans,
directing and coordinating sales, making
environmental scanning or research that will
allow the company to increase sales, or
identifying new market opportunities, analyzing
and assessing the effectiveness and efficiency
of the plans, methods and strategies applied
and establishing a good relationship with
customers and distributors.
• The VICE PRESIDENT FOR ADMINISTRATION
is responsible for the coordination of the different
departments, providing assistance to the other
department by determining the staff needed and
assisting other departments in hiring employees and
in payroll preparation.
• The VICE PRESIDENT FOR PRODUCTION
makes sure that the production meets the demand,
finds ways to minimize cost in producing a
competitive quality product, maximizes the utilization
of the production facilities and solves production
issues.
• The VICE PRESIDENT FOR FINANCE makes
decisions including planning, acquiring and
utilization of funds. The functions of the Finance
Manager are investing decisions, financing
decisions, operating decisions, and declaring
dividends.
o Investing decisions deals with managing the
assets of the firms. Some of the examples of
investment decisions are the allocation of funds,
determination of the funds that a firm can put into
investment, evaluation, and selection of capital
investment proposal.
o Financing decisions includes making decisions
on how to finance the long-term investments
(expansions or acquisition of new land) and
working capital which deals with the day-to-day
operations of the company (payment of rent and
utilities, purchase of raw materials). The finance
manager must determine the right capital structure
of the company. Capital structure refers to how
much the total asset is financed by the debt (like
loans) or equity (like stocks or bonds).
o Operating decisions deals with working capital
management. Working capital refers to short-term
assets and short-term liabilities. Inventory,
receivables, cash, and short-term investments are
examples of short-term assets. Accounts payable
and short-term investments are examples of short-
term liabilities. Working capital management helps
the firm to ensure that the firm has sufficient
resources to finance the day-to-day operations but,
if the management is aggressive, they will take the
risk to use either long-term or short-term sources
or even the combination of the sources.
o Declaration of dividends refers to the
determination of how much dividends are to be
distributed to the shareholders, frequency of
payments and amounts to be retained by the
firm. Dividend is a portion of profit or payment
made by a corporation to its shareholders.
o There are certain conditions before a
company can declare dividends:

(1) The company must have enough retained

earnings (accumulated profits) to support
cash dividend declaration.

(2) They must have enough cash

Both the treasurer and the controller report to the
Vice President for Finance. The treasurer is
responsible in managing the cash and credit,
financial planning and capital expenditures. The
controller handles tax payments, financial
accounting and management information systems.
The organizational structure of the firm
depends on the size and nature of the firm.
Every department in the organization needs
funds to function well. Since finance is
needed in all parts of the organization, the
finance manager must communicate with
other department managers to achieve the
goals of the company.
THE ROLE OF THE FINANCE MANAGER
According to Cabrera (2017), “In striving to
maximize owners’ or shareholders’ wealth, the financial
manager makes decisions involving planning,
acquiring, and utilizing funds which involve a set of
risk-return trade-offs.” Those risks or returns would
have an impact on the market value of the firm that will
lead to the shareholder’s wealth maximization or
downfall of the firm if no proper decisions were made,
but some of the factors that affect the market’s price of
the firm’s shares are beyond the control of the
management.
Thus, it is the responsibility of the financial
manager to make decisions in allocating the
funds or resources properly, finding the best
alternatives for funding the company, and
creating a policy in distributing the
dividends of the investors in line with the
organization’s objectives.
WRITTEN WORK 2:
DIRECTION: Answer the following questions in one (1) to two (2)
sentences.
 WRITTEN WORK 3:
DIRECTION: Below are quotes from CEO’s of business organizations.
Give your insights in every quote based on what you have read. Use the
diagram below for your answers.

1. “Finance plays a critical role across every aspect of our

business. We enable the business to turn our ambition and
strategy into sustainable, consistent and superior
performance” - Jean-Marc Huët of Unilever

2. “It’s very exciting because you are not just thinking of today
but what the company will need in the future” - Ysmael V.
Baysa. of Jollibee
3. “Yesterday’s solutions are never adequate for the future” –
Albert De Larrazabal of Globe Telecom
4. “Now, we don’t go out because we need funds. We go out
because it’s an opportunity.” – Jose T. Sio of SM
Corporation
QUOTE NUMBER YOUR INSIGHTS
1
2
3
4
RUBRIC FOR WRITTEN WORK 3
WRITTEN WORK 4:
DIRECTION: Develop an organization structure of your chosen
business. Make a list of people involved in the organization and
enumerate their possible duties and functions. Write your answer on the
space below.
RUBRIC FOR WRITTEN WORK 4
WRITTEN WORK 5:
DIRECTION: The different departments cannot stand alone; therefore,
they need the support of other departments to facilitate the maximization
of shareholders’ wealth. Explain and discuss possible contribution of one
department to the other departments. Use the given diagrams for your
answers.
RUBRIC FOR WRITTEN WORK 5
 A. Directions: Write True if the statement is correct and False
if the statement is incorrect.
_______1. The controller is responsible in managing the cash
and credit, financial planning and capital expenditures.
_______2. Investing decisions deals with managing the assets of
the firms.
_______3. The Board of Directors is the highest position in a
corporation.
_______4. Financing decisions includes making decisions on how
to finance the long-term investments and working
capital which deals with the day-to-day operations of
the company.
______5. The treasurer handles tax payments, financial
accounting and management information systems.
______6. Operating decisions deals with working capital
management.
______7. Sales is a portion of profit or payment made by a
corporation to its shareholders.
______8. The goal of financial management is to minimize the
wealth of the shareholders.
______9. Marketing management includes planning,
organizing, controlling, and directing to acquire and
utilize the funds or resources effectively and
efficiently.
______10. The company must have enough retained earnings
and cash to declare cash dividends.
 B. Directions: Choose the correct letter from the box.

_______11. It deals with ways of managing money.

_______12. It is concerned with planning, analysis, utilization,
and acquisition of funds.
_______13. They elect the Board of Directors.
_______14. He/She is appointed by the Board of Directors.
_______15. He/She formulates business strategies and plans.
Directions: Answer each question in two (2) to three (3) sentences.
ANSWER KEY

ASSESSMENT B. 1. E
1. TRUE 2. E
2. TRUE 3. A
3. TRUE 4. B
4. TRUE 5. C
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. FALSE
10.TRUE