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