INTRODUCTI

ON TO
FINANCIAL
MANAGEMEN
T
KEVIN M. DE LEON, MBA
Professor
OBJECTIVES
01. 02.
Define finance and Describe who are
rationalize the responsible for financial
importance of finance in management within an
business world; organization;

03. 04. 05.

Describe the primary Describe how the Describe the role of
activities of the financial financial manager helps financial institutions and
manager; in achieving the goal of markets.
the organization;

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Introduction

A business is an entity in which skills, energy, and

enterprise of owners and partners are linked with
money, its sources and investment, and its success is
measured by wealth, or profit the business gets. To be
successful
To be successful in business finance function, Ernest Jones
(1994) identified the following elements:
• The business entity must obtain money from the right
sources and invest it in the right places;
• It must continue to attain its purpose of gaining profit; and
• Cash must be available when it is needed, and its
availability can be crucial in some decision-making
situations.

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 FINANCE
• It studies money and its
management. Similar to
economics, it explores the
allocation of resources. In
all cases, the financial
decision is made at present
but return is expected in
the future.
 FINANCE
• As a discipline has three areas:
financial institutions,
investments, and business
finance.
• As an academic discipline, has
its roots in accounting and
economics. The finance course
emphasizes the analysis of
financial statements and legal,
managerial, and marketing
topics.
“
B USINESS FINANCE involves the
management of financial resources available to the
organization. To operate, a business needs a variety
of assets – tangible and intangible. All these
assets have to be paid for, thus a manager will need
to raise funds. Funds can be borrowed from a
financial institution or contributed by investors.
“ The manager has to make major financial decisions for the
business, and these are FINANCING DECISION and
INVESTMENT DECISION.

Financing Decision – generating funds internally or from

external sources. Funds may be generated externally from
borrowing and by issuing debt or equity securities.

Investment Decision – determine the real assets that a

business has. These assets generate the cash flows that are
needed to meet operating expenses, pay interest to creditors,
taxes to government and dividends to stockholders.
Functions of Business Finance

1. Is both an art and 3. Effective use of resources requires

science of managing the periodic assessment of whether
financial resources of an operations are consistent with the
organization. (Effective company’s plans in attaining its short-
and Efficient) term and long-term goals.

2. It is important that 4. It is unwise to have an

funds are channeled to excessive balance of
activities that are cash, receivables,
profitable or costs are inventories, and other
minimal. financial resource.

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Roles of Financial Manager – Peirson (1997)
The role is essentially the same in all companies – that is, to acquire the necessary funds and to ensure that they are used
effectively. In larger corporations, the owners or stockholders are usually not directly involved in making business decisions,
particularly on a day-to-day basis.
 Obtaining and servicing short-term finance
 Managing Investment in non-current assets through
evaluation of capital projects.  Managing risks associated with changes in interest
 Evaluation, obtaining, and servicing long-term rates and exchange rates.
financial requirements through borrowing, leasing,  Assessing the viability of growth through the
retaining funds, or issuing stocks and securities. acquisition of other businesses.
 Distribution of dividends to shareholders.  Planning the future development of the business.
 Collection and custody of cash and payment of bills.  Development and implementation of financial
 Managing investment in current assets such as cash, policies.
marketable securities, and inventory.

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Roles of Financial Manager – Stephen Ross (1998)
The role is essentially the same in all companies – that is, to acquire the necessary funds and to ensure that they are used
effectively. In larger corporations, the owners or stockholders are usually not directly involved in making business decisions,
particularly on a day-to-day basis.

 CAPITAL BUDGETING – this concern the planning and managing of the firm’s long-term investments. The
financial manager tries to identify investment opportunities that are worth more to the firm that the cost to
acquire. Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting.
 CAPITAL STRUCTURING – This evaluates ways in which the firm obtains and manages the long-term
financing it needs to support its long-term investments. The firm’s capital structure or financial structure is the
specific mixture of long-term debt and equity the firm uses to finance its operations.
 WORKING CAPITAL MANAGEMENT – This refers to the administration of the firm’s short-term assets,
including inventory and its short-term liabilities such as money owed to suppliers.

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The Philippine Financial System
1. Began in the 16th century with the
establishment of Obras Pia (pious works) by
laymen associated with religious orders.
19th century the Rodriguez Bank was emerged.
3. The first mutual savings in the country, the Monte de
Piedad y Caja de Ahorros opened in 1882. The bank was then
renamed Monte de Peidad Savings Bank.
The Banco Espanol-Filipino de Isabel II changed its name to
Bank of the Philippine Islands on January 1, 1912.

2. The First State bank in the Philippines is Banco
Espanol-Filipino de Isabel II.
. British Orient Banks branches in the country as
a result of the expanded Philippine-European
trade in 1873.
4. The first Agricultural Bank
was established in 1908 but its
assets and liabilities were
transferred to the Philippine
National Bank which was
organized in 1916.

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The Philippines Financial System – History of Banking

Three years after the American regime ended, the Central

Bank of the Philippines was created, establishing a managed
monetary system in the Philippines.

More Private commercial banks and savings banks started

their operation later. The period saw the start and growth of
the rural banking system, the savings and loan associations,
and specialized government banks.
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The Philippines Financial System – BANKING

Banking is the service performed by a financial institution

known as a bank, which is primarily concerned with the
safekeeping of funds through acceptance of deposits of
money, and the provision of credit through lending of money.

Banking Institutions: Commercial Banks, Thrift Banks, Rural

Banks(Regional Unit Bank), and Specialized Government
Bank
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The Philippines Financial System – The Bangko Sentral ng Pilipinas

BSP is responsible for maintaining price stability conducive to balance

and sustainable growth of the economy.

As provided by Republic Act 7653 and other pertinent laws, the BSP
also regulates the operations of finance companies and non-bank
financial institutions doing quasi-banking functions.

BSP performs several important functions: The Money Manager, The

Supplier of Money, The Banker’s Bank, The Supervisor of All Banks,
and The main Bank of the Government
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Thank you