Introduction to Financial Management
sole proprietorship
a business owned by one person and operated for his or her own profit
partnership
a business owned by two or more people and operated for profit
corporation
an entity created by law owned by shareholders
short term sources
are those sources which will be payable in at most 12 months
planning, organizing, staffing, directing, controlling
areas of management
enough retained earnings (accumulated profits) and cash
before a company may be able to declare cash dividends, two conditions must exist: ...
equity and debt securities
categories of financial instruments
privately owned corporation
corporations which are often owned by family members whose stocks may not be offered to outsiders unless consent by the family members is secured
publicly owned corporation
corporations which are owned by unrelated investors and are traded in organized exchanges like the Philippine Stocks Exchange. while there are many stockholders, there is generally a group of investors or a family that controls each listed company.
commercial banks, insurance companies, mutual funds, pension funds
examples of financial institution
how much they: spend, save and need, invest, raise
finance is concerned with decision about ...
pension funds
financial institutions which receive payments from employees and invest the proceeds on their behalf
debt securities
financial instrument that provides a contractual right to receive cash
equity securities
financial instrument that provides evidence of an ownership interest in a corporation
financing, investing, operating, dividend policies
fuctions of a financial manager
VP for finance
his/her role is to determine the appropriate capital structure of the company
insurance companies
individuals purcahse insurance protection with insurance premiums
financial instruments
is a real or a virtual document representing a legal agreement involving some sort of monetary value
capital budgeting analysis
is a tool to assess whether the investment will be profitable in the long run
financial asset
is any cash asset and is an equity instrument
equity instrument
is any contract that evidences a residual interest in the assets of an entity after deducting all liabilities
financial liability
is any liability that is a contractual obligation
philippine stock sxchange (PSE)
is both a primary and secondary market
budgetting
is the act of estimating revenue (in the form of allowance) and expenses over a period of time
preferred stock
it has a priority over a common stock in terms of claims over the assets of a company
liquidity
it is the ability of the firm to pay off the current liabilities with the current assets it possess
board of directors
it is the highest policy making body in a corporation. its responsibility is to ensure that the corporation is operating to serve the best interest of stockholders
profit
it is the measurement of the financial performance of a company for a period of time
finance
it is the science and art of managing money (gitman & zutter, 2012)
capital structure
it refers to how much of your total assets is financed by debt and how much is financed by equity
liquidity and leverage
it refers to the company's management of the type and amount of assets and liabilities that it will hold in the course of its operation
large quantity of cash
it signals unhealthy company practices. it may tell them that the management has not been putting the company's resources into good use
external factors
its effects is not only to a specific comlany but on all companies or a group of companies under similar circumstances
capital budgeting analysis
long term investment should be supported by a ... which is among the responsibilities of a finance manager
future expansion
note that there may be times that companies do not pay out dividends because of ...
financial markets
organized forums in which the suppliers and users of various types of funds can make transaction directly
GSIS, SSS, UITF
other financial institutions include pension funds like
market price
same with the other factors affecting share price, dividend policies should go hand in hand with other factors determining the ...
profitability and liquidity risk
short term sources pose a trade-off between ... and ... because these sources mature in a short period, hence, there's a possibility that the company may not be able to obtain enough cash to pay its obligation
external factors
such factors are the result of the environment a company operates in rather than the decisions of the company's management
president (chief executive officer)
the a responsible of everseeing the company, the one performing all areas of management and is the one who represents the company in professional, social and civic activities
non-declaration of dividends
the case when the shareholder do not get his/her dividend, hence it is the role of financial manager to determine when the company should declare cash dividends
markets perception, share price
the decisions made in the financial management will ultimately affect the ... of the company and influence the ...
initial public offering
the first offering of stock
VP for administration
the one whose coordinating the fuctions of administration, finance, and marketing departments
VP for production
the one whose identifying adequate and cheap raw material suppliers
VP for marketing
the one whose promoting good relationships with customers and distributors (cayanan, 2015)
accounts receivable and inventories
the role of the VP for finance is determining how to finance working capital accounts such as ...
private placement
the sale of new securities to one investor or group of investors
public offering
the sale of new securities to the general public
mutual funds
these are owned by investment companies which enable small investors to enjoy the benefits of investing in a diversed portfolio of securities purchsed on their behalf by professional investment managers
treasury bonds and treasury bills
these bonds and bills usually have low interest rates and have very low risk of default since the government assures that these will be paid
corporate bonds
these bonds are issued by publicly listed companies. they usually have higher interest rates and risks
operating decisions
these decisions deal with the daily operations of the company
financing decisions
these include making decisions on how to fund long term investments and working capital which deals with day to day operations of the company
commercial banks
these use the deposited funds to provide commercial loans to firms and personal loans to individuals, and purchase debt securities issued by firms of government agencies
managers
they are the ones responsible for making the decisions for the company that would lead towards share holders' wealth maximization
shareholders
they are the ones who elect the board of directors (BOD)
holders of common stock
they are the real owners of the company
financial management
this deals with the decisions which are supposed to maximize the value of shareholders' wealth (cayanan)
external factors
this factors influence the general reaction of investors in making an investment decision
keeping to much cash in the books
this is like hiding your extra allowance under their bed. they will be missing out on investment opportunities
maximaze the value of shareholdsrs' stocks
this is the goal of financial management
shareholders' wealth maximization
this is the major objective of a financial management which means maximizing the market value of stocks
wealth maximization
this is the overall objective of a shareholder
carry out the shareholders' objectives
this is the responsibility of the boards of directors
Dividends
this is what the holders of shares get from a corporation as returns on their investments in form of cash or other properties
financial system
this is where savers and users of funds meet with the financial intermediaries between them
plan
this is where the financial management starts
secondary market
this is where the sale of pre-owned securities happens
short term investment decisions
this kind of investment decisions are needed when the company is in an excess cash position
financial planning tools (budgeting, forecasting)
to be able to plan for short term investment decisions, the financial manager should be able to make use of ...
primary market
to raise money, users of funds will go to ... to issue new securities (debt/equity) through a public offering or private placement
common stock, preferred stock
types of equity securities
life, property and casualty, health
types of insurance
higher interest rate
what makes a long term source higher the short term source