MODULE 6:

MANAGING THE
FINANCE
PART II
FUNCTIONS
GR OUP 6B:
AQUINO, CALVIN RAY T.
C ASTUER A, JOHN LORVIN P.
DE VERA, ANTHONY J R. A.
DUAG, VLADIM ER E B EETHOVEN
LINANTUD, KHIM C.
VALENZUELA, PRECIOUS AB BY T.
 CONTENT
R E C A P
01 02 03 04
INTRODUCTION ROLE OF 3 FINANCIAL TYPES OF
TO FINANCIAL FINANCIAL STATEMENTS FINANCIAL
MANAGEMENT MANAGERS MANAGERS

05 06 07 08
IMPORTANT SKILLS FINANCIAL IMPORTANCE OF COMPANY’S
FOR FINANCIAL MANAGEMENT THE FINANCIAL FINANCIAL
MANAGERS CYCLE MANAGEMENT HEALTH
 MODULE 6
OBJECTIVES
After successful completion of the instructional
manual, you should have possessed the following
abilities/ attributes:

o Adept in the evaluation company’s financial health;

o Well well-versed on how finance function play in an organization;
o Well espoused in the roles of managerial finance and corporate finance;
o Equipped in the preparation, and use of a company’s basic financial statements;
o Relate the basic financial statements, Income Statement, Balance Sheet, and Cash Flow;
o Knowledgeable in the jobs performed by financial managers;
o Keen in the use of financial managers’ skills;
o Discuss the importance company’s Financial Management Cycle;
 IMPORTANCE OF FINANCE
Finance involves the evaluation , disclosure , and
management of economic activity and is crucial to the
successful and efficient operation of firms and
markets.
 MANAGERIAL FINANCE
Managerial finance concerns itself with the
managerial significance of finance

It is focused on assessment rather than

technique.

For instance, in reviewing an annual report, one

concerned with technique would be primarily
interested in measurement. They would ask: is
money being assigned to the right categories?
Were generally accepted accounting principles
(GAAP) followed?
 MANAGERIAL FINANCE

A person working in managerial finance would be interested in the significance of a firm’s

financial figures measured against multiple targets such as internal goals and competitor figures.

They may look at changes in asset balances and probe for red flags that indicate problems with
bill collection or bad debt as well as analyze working capital to anticipate future cash flow
problems.

Sound financial management creates value and organizational ability through the allocation of
scarce resources amongst competing business opportunities. It is an aid to the implementation
and monitoring of business strategies and helps achieve business objectives.
 CORPORATE FINANCE
Corporate finance is the area of finance dealing
with monetary decisions that business
enterprises make and the tools and analysis used
to make those decisions.
The primary goal of corporate finance is
to maximize shareholder value.
Although it is in principle different from
managerial finance, which studies the financial
decisions of all firms, rather than corporations
alone, the main concepts in the study of
corporate finance are applicable to financial
problems of all kinds of firms.
Capital investment can be divided into long-term
and short-term decisions and techniques.
o are long-term choices about which projects
receive investment, whether to finance that
investment with equity or debt, and when or
whether to pay dividends to shareholders.
o short-term decisions deal with the short-term
balance of current assets and current liabilities; the
focus here is on managing cash, inventories, short-
term borrowing, and lending (such as the terms on
credit extended to customers).
 CORPORATE FINANCE
The terms corporate finance and corporate
financier are also associated with investment
banking. The typical role of an investment bank
is to evaluate the company’s financial needs and
raise the appropriate type of capital that best fits
those needs. Thus, the terms “corporate finance”
and “corporate financier” may be associated with
transactions in which capital is raised in order to
create, develop, grow, or acquire businesses.
 • Financial managers perform data analysis and advise senior managers on profit
maximizing ideas.

• The role of the financial manager, particularly in business, is changing in

response to technological advances that have significantly reduced the amount of
time it takes to produce financial reports.
Key Points

• Types of financial managers include controllers, treasurers, credit managers, cash

managers, risk managers and insurance managers.
Financial managers perform data analysis and
advise senior managers on profit maximizing
ideas.

Financial managers are responsible for the financial health of an

organization.

Prepare financial statements, business

activity reports, and forecasts,

Monitor financial details to ensure that legal

requirements are met, ROLE OF
FINANCIAL
Supervise employees who do financial
reporting and budgeting,
MANAGERS
ROLE OF
FINANCIAL
MANAGERS
Financial
Review company financial reports and seek
managers’ main
ways to reduce costs,
responsibility
used to be monitoring a company’s
Analyze market trends to find opportu-nities for
finances, but they now do more data
expansion or for acquiring other companies,
analysis and advise senior managers on
ideas to maximize profits. They often
work on teams, acting as business
Help management make financial decisions. advisors to top executives.
 THREE FINANCIAL STATEMENTS

INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT

These three core statements are intricately linked to each other and this guide will
explain how they all fit together.

Income Statement
The income statement shows the performance of the business throughout each period, displaying sales
revenue at the very top. The statement then deducts the cost of goods sold (COGS) to find gross
profit. From there, other operating expenses and income, depending on the nature of the business, to
reach net income at the bottom – “the bottom line” for the business, affect the gross profit.
INCOME STATEMENT

Key features:
o Shows the revenues and expenses of a business
o Expressed over a period of time (i.e., 1 year, 1 quarter, Year-to-Date, etc.)
o Uses accounting principles such as matching and accruals to represent figures (not
presented on a cash basis)
o Used to assess profitability
 Balance Sheet
The Balance sheet displays the company’s assets, liabilities, and shareholders’ equity at a point in
time. As commonly known, assets must equal liabilities plus equity.
The asset section begins with cash and equivalents, which should equal the balance found at the end
of the cash flow statement. The balance sheet then displays the changes in each major account from
period to period. Net income from the income statement flows into the balance sheet as a change in
retained earnings (adjusted for payment of dividends).

Key features:
o Shows the financial position of a business
o Expressed as a “snapshot” or financial picture of the company at a specified point in time (i.e.,
as of December 31, 2017)
o Has three sections: assets, liabilities, and shareholders equity
BALANCE SHEET

Assets = Liabilities + Shareholders Equity

 Cash Flow Statement
The cash flow statement then takes net income and adjusts it for any non-cash expenses. Then, using
changes in the balance sheet, usage and receipt of cash is found. The cash flow statement displays the
change in cash per period, as well as the beginning balance and ending balance of cash.

Key features:
o Shows the increases and decreases in cash
o Expressed over a period of time, an accounting period (i.e., 1 year, 1 quarter, Year-to Date, etc.)
o Undoes all accounting principles to show pure cash movements
o Has three sections: cash from operations, cash used in investing, and cash from financing
o Shows the net change in the cash balance from start to end of the period
CASH FLOW STATEMENT
 THREE FINANCIAL STATEMENTS

INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT

Financial modeling is a representation in numbers of a
company's operations in the past, present, and the
forecasted future. Such models are intended to be used as
decision-making tools. Company executives might use
them to estimate the costs and project the profits of a
proposed new project.
4. Assumptions from existing historical data are then used to create forecasted
assumptions for the same line items;

5. The forecasted section of each core statement will use the forecasted assumptions to
populate values for each line item;

6. Supporting schedules are used to calculate more complex line items. For example, the debt
schedule is used to calculate interest expense and the balance of debt items. The depreciation
and amortization schedule is used to calculate depreciation expense and the balance of long-
term fixed assets. These values will flow into the three main statements
 CAPITAL INVESTMENT
DECISIONS
Capital investment decisions are long-term
corporate finance decisions relating to fixed
assets and capital structure. Decisions are based
on several inter-related criteria.

Corporate management seeks to maximize the

value of the firm by investing in projects which
yield a positive net present value when valued
using an appropriate discount rate in
consideration of risk.
 CAPITAL INVESTMENT
DECISIONS
These projects must also be financed
appropriately. If no such opportunities exist,
maximizing shareholder value dictates that
management must return excess cash to
shareholders (i.e., distribution via
dividends). Capital investment decisions thus
comprise an investment decision, a financing
decision, and a dividend decision.
 CAPITAL INVESTMENT
DECISIONS
Management must allocate limited
resources between competing
opportunities (projects) in a process
known as capital budgeting. Making this
investment decision requires estimating
the value of each opportunity or project,
which is a function of the size, timing and
predictability of future cash flows.
MANAGING THE
FINANCE
FUNCTIONS
PART II
 CONTROLLERS

CREDIT MANAGERS

RISK MANAGERS FINANCIAL

MANAGERS
INSURANCE MANAGERS
 CONTROLLERS

Di re c t t h e p re p a ra t i o n o f fi n a n c i a l re p o rt s t h a t
su m m a ri z e a n d fo re c a s t t h e o rg a n i z a t i o n ’s
fi n a n c i a l p o s i t i o n , s u c h a s i n c o m e s t a t e m e n t s ,
ba l a n c e s h e e t s , a n d a n a l y s e s o f fu t u re
ea rn i n g s o r e x p e n s e s .

In c h a rg e o f p re p a ri n g s p e c i a l re p o rt s
re q u i re d b y g o v e rn m e n t a l a g e n c i e s t h a t
re g u l a t e b u s i n e s s e s . (PFR S & B IR)
 CONTROLLERS

Ov e rs e e t h e a c c o u n t i n g , a u d i t ,
an d b u d g e t d e p a rt m e n t s .

C a rry o u t s t ra t e g i e s t o ra i s e c a p i t a l
an d a l s o d e v e l o p fi n a n c i a l p l a n s fo r
m e rg e s a n d a c q u i s i t i o n s .
 CREDIT MANAGERS

Ov e rs e e t h e fri m ’s c re d i t bu s i n e s s .

Se t c re d i t -ra t i n g c ri t e ri a , d e t e rm i n e c re d i t
ceilings, and monitor the collections of past-
due accounts.

Mo n i t o r a n d c o n t ro l t h e fl o w o f c a s h t h a t
comes in and goes out of the company to meet
t h e c o m p a n y ’s b u s i n e s s a n d i n v e s t m e n t n e e d s .
 RISK MANAGERS

Con trol finan ical risk by u sing h edg ing an d

ot her st rateg ies t o li mit o r o ffset t he
prob abil ity of a fi nanci al loss or a
compan y’s exp osure t o fi nanci al
un cert ai nt y.
 INSURANCE MANAGERS

Decid e h ow b est t o limit a company ’s losses

by obt aini ng in surance ag ainst risk s such as
need t o mak e d isabil ity p ayments fo r an
emp lo yee.
 IMPORTANT SKILLS FOR
FINANCIAL MANAGERS

1 ANALYTICAL SKILLS

2 COMMUNICATION

3 ATTENTION TO DETAIL
SKILLS

4 MATH SKILLS

5 ORGANIZATIONAL SKILLS
 FINANCIAL
MANAGEMENT CYCLE
Finance is the lifeblood of business organization.
It needs to meet the requirement of the business
concern. Every business concern must maintain
adequate amount of finance for their smooth
running of the business concern and maintain the
business carefully to achieve the goal of the
business concern. The business goal can be
achieved only with the help of effective
management of finance.
 FINANCIAL PLANNING
Financial management helps to
determine the financial requirement of
the business concern and leads to take
financial planning of the concern. 7 IMPORTANCE
Financial planning is an important OF THE
part of the business concern, which FINANCIAL
helps to promotion of an enterprise. MANAGEMENT
 ACQUISITION OF FUNDS
Financial management involves the
acquisition of required finance to the
business concern . Acquiring needed
funds play a major part of the
financial management, which involve
possible source of finance at minimum
cost.
PROPER USE OF FUNDS
Proper use and allocation of funds
leads to improve the operational
efficiency of the business concern .
When the finance manager uses the
funds properly, they can reduce the
cost of capital and increase the value
of the firm.
 FINANCIAL DECISION
Financial management helps to take
sound financial decision in the business
concern. Financial decision will affect
the entire business operation of the
concern. Because there is a direct
relationship with various department
functions such as marketing, production
personnel, etc.
IMPROVE PROFITABILITY
Profitability of the concern purely
depends on the effectiveness and proper
utilization of funds by the business
concern. Financial management helps to
improve the profitability position of the
concern with the help of strong financial
control devices such as budgetary
control, ratio analysis and cost volume
profit analysis.
 INCREASE THE VALUE OF
THE FIRM
Financial management is very
important in the field of increasing
the wealth of the investors and the
business concern. Ultimate aim of any
business concern will achieve the 7 IMPORTANCE
maximum profit and higher OF THE
profitability leads to maximize the FINANCIAL
wealth of the investors as well as the MANAGEMENT
nation.
 PROMOTING SAVINGS

Savings are possible only when the Financial management is also

business concern earns higher popularly known as business finance
profitability and maximizing wealth. or corporate finances . The business
Effective financial management helps concern or corporate sectors cannot
to promoting and mobilizing function without the importance of the
individual and corporate savings. financial management.
 PROMOTING SAVINGS

Savings are possible only when the Financial management is also

business concern earns higher popularly known as business finance
profitability and maximizing wealth. or corporate finances . The business
Effective financial management helps concern or corporate sectors cannot
to promoting and mobilizing function without the importance of the
individual and corporate savings. financial management.
There are several things investors are looking for when
it comes to finding the right business to invest in, but
it is hard to find a business that passes their criteria on
every aspect they are looking into.

To examine the financial health of a business, one

should consider liquidity, solvency, profitability, and
operating efficiency of the company.
Liquidity is the amount of cash and easily-convertible-
to-cash assets a company owns to manage its short-term
debt obligations. The two most common metrics used to
measure liquidity are the current ratio and the quick
ratio.
Current ratio calculations include all the firm's current
assets, while quick ratio calculations only include
quick or liquid assets. The quick ratio of a company is
considered conservative because it offers short-term
insights (about three months), while the current ratio
offers long-term insights (a year or longer).
Current assets are the most liquid. They can be used for
transactions almost instantly. Of the current assets
considered highly liquid, cash ranks at the top of the
list. Other kinds of assets, such as marketable
securities, accounts receivable, inventory, and prepaid
expenses, are less liquid because they need to be sold
to be converted into cash.
Fixed or long-term assets
are considered less liquid because converting them to c
ash can take months or even years. They also tend to be
assets the business needs to function, such as equipme
nt or buildings. These may hold a lot of potential value,
but they are not easy to convert into cash.
Solvency
is the ability of a company to meet its long-term debts
and other financial obligations. Solvency is one measur
e of a company's financial health, since it demonstrates
a company's ability to manage operations into the fores
eeable future.
T
he quickest assessment of a company’s solvency is its a
ssets minus
liabilities, which equal its shareholders’ equity. There a
re also solvency ratios, which can spotlight certain area
s of solvency for deeper analysis.
Many companies have negative shareholders’ equity, wh
ich is a sign of insolvency. Negative shareholders’ equit
y insinuates that a company has no book value, and this
could even lead to personal losses for small business o
wners if not protected by limited liability terms if a co
mpany must close. In essence, if a company was require
d to immediately close down, it would need to liquidate
all of its assets and pay off all of its liabilities, leavin
g only the shareholders’ equity as a remaining value.
Operational efficiency is the relationship between an
organization's output and input, that when healthy,
helps businesses cut down on unnecessary costs while
increasing revenue. It's what businesses strive to do:
produce a high-quality product at scale with as few
resources as possible.
Profitability is a measurement of efficiency. It is a
metric that is used to determine the scope of a
company's profit in relation to the size of the business
and ultimately its success or failure.
Profitability can tell key stakeholders whether a
company is able to sustain its position in the market
and continue to grow. It is the extent to which a
company earns a profit. There are two parts to a
company's profitability: revenue and expenses. As such,
a company is profitable if its revenue exceeds its
expenses.
THANK
YOU!