3RD QUARTER Flashcards by Mary grace Mugar

Why why should we learn about finance and financial management?

• is always of great importance be it in a business or in once everyday life.
• it is important to manage risk in business it is equally important to manage risk in life as well.
• risk is nothing but an uncertain event that might damage your assets and when it is financial risk it creates loss of finance.
• finance as the science and art of managing money ( Gitman & Zutter )

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Deals with the decisions that are supposed to maximize the value of shares holders wealth

FINANCIAL MANAGEMENT

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The goal of _________________ is to maximize the value of shares of stock.

FINANCIAL MANAGEMENT

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Are responsible for making the decisions for the company that would lead towards shareholders wealth maximization.

MANAGERS OF A CORPORATION

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Maximizing____________________true maximization of stock price should be the overriding objective of management as it covers the different phases of operating.

SHAREHOLDERS WEALTH

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Links the savers and the users of funds.

FINANCIAL SYSTEM

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Savers:

• HOUSEHOLDS
• INDIVIDUALS
• CORPORATIONS/COMPANIES
• GOVERNMENT AGENCIES

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Financial intermediaries:

•BANKS
•INSURANCE COMPANIES
•STOCK EXCHANGE
•STOCK BROKERAGE FIRMS
•MUTUAL FUNDS
•OTHER FINANCIAL INSTITUTIONS

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Users of funds:

•HOUSEHOLD
•INDIVIDUALS
•CORPORATION/COMPANIES
•GOVERNMENT AGENCIES

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Can come from households, individuals, companies, government agencies or any other entity whose cash inflows are greater than their cash outflows.

SAVINGS

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Provides a mechanisms by which the savings can be channel to users of funds, borrowers and investors

FINANCIAL SYSTEM THROUGH FINANCIAL INTERMEDIARIES

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Provides a system for the trading of the securities.

FINANCIAL MARKET

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Offers facilities for the trading of shares of publicly listed companies.

THE PHILIPPINE STOCK EXCHANGE (PSE)

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A company can be become publicly listed through an ___________ where shares will be offered to many investors.

INITIAL PUBLIC OFFERING ( IPO)

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Corporate bonds and government debt securities can be traded through the _______________________.

PHILIPPINE DEALING AND EXCHANGE CORP. ( PDEX )

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Provide mechanism where savers can put their exist funds through deposits.

BANKS

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Offer different products.

INSURANCE COMPANIES

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Investing in the stock market has to be coursed through

STOCK BROKERAGE FIRMS

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Two of the online brokers in the philippines:

COL FINANCIAL AND BPI TRADE

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Provide opportunities for big and small investor to invest in financial instrument which they would not have considered on their own or they may have considered but do not have the time or the expertise to do it.

MUTUAL FUNDS

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Are generally classified into two major categories;

FINANCIAL INSTRUMENT

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Two categories of financial instrument

COMMON STOCKS
PREFERRED STOCK

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Represent a share in ownership of a company including a claim on the company’s earning and assets.

STOCK

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A type of tradable assets or security that equates to ownership in a company.

COMMON STOCKS

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Is just one type of stock traded on public

COMMON STOCK

Represent ownership and equity security ( like common stocks ) but it's act like a fixed income security ( unlike common stock )

PREFERRED STOCK

Has priority over a common stock in terms of claims over the asset of company.

PREFERRED STOCK

Usually confirms no voting rights to shareholders while common stock does

PREFERRED STOCK

Have also priority over common stocks in cash dividend declaration

Preferred stocks

Is a distribution of a portion of a company's earnings paid to its shareholders in the form of cash

CASH DIVIDENDS

A financial instrument that represent a loan to entity such as corporation or government with the promise to repay the loan plus interest.

DEBIT SECURITY

The treasury bonds and treasury bills issued by_________

NATIONAL TREASURY

The treasury bills which are in tenors of _______

91 DAYS, 182 DAYS, AND 360 DAYS

Some publicly listed companies have also started issuing corporate bonds the tenors are usually

5 YEARS, 7 YEARS, AND 10 YEARS

Organizational chart

SHAREHOLDERS BOARD OF DIRECTORS PRESIDENT OR CEO VP FOR MARKETING VP FOR FINANCE VP FOR PRODUCTION VP FOR ADMINISTRATION

The _________________ elect the board of directors each sharehold is equal to one voting rights.

SHAREHOLDERS

Highest policy making body in a corporation.

BOARD OF DIRECTORS

Primary responsibility is to ensure that the corporation is operating to serve the best interest of stockholders

BOARD OF DIRECTORS

Responsibilities of board of directors

1. Setting policies on investment, capital structure and dividend policies. 2. Approving company strategies, goals and budgets. 3. Appointing and removing members of the top management including the president. 4. Determining top management compensation. 5. Approving the information and other disclosure reported in the financial management.

Responsibilities of president (CEO)

1. Overseeing the operation of a company and ensuring that the strategies as approved by the board are implemented as planned. 2. Performing all areas of management: planning, organizing, staffing, directing and controlling. 3. Representing the company in professional social, and civic activities. 4. Carries out the decision making for all function

Responsibilities of vp of marketing

1. Formulating marketing strategies and plans 2. Directing and coordinating company sales 3. Performing market and competitor analysis 4. Analyzing and evaluating the effectiveness and cause of marketing methods applied. 5. Conducting or directing research that will allow the company identify new marketing opportunities example variance if the existing products or services already offered in the market. 6. Promoting good relationship with customers and distributors

Responsibilities of VP for production

1. Ensuring production meets customer demands 2. Identifying production technology or process that minimizes production cost and make the company cost competitive 3. Coming up with production plan that maximizes the utilities of the company's production policies. 4. Identifying adequate and cheap raw materials suppliers.

The responsibilities of VP for administration

1. Coordinating the function of administration, finances and marketing departments 2. Assessing other departments in hiring employees. 3. Providing assistance in payroll preparation, payment of vendors, collection of receivables. 4. Determining the location and maximum amount of office space needed by the company. 5. Identifying means process or system that minimize the operating cost of the company.

The responsibilities of VP for finance

The role of the Vp for finance of financial manager is to determine the appropriate capital structure of the company

Refers to how much of your total asset is financed by depth and how much is finance by equity.

Capital structure

The four function of vp for finance

•FINANCING •INVESTING •OPERATING •DIVIDEND POLICIES

Financing decisions include making decisions as to how finance long term investments and working capital which deals with the day to day operations of the company.

FINANCE

Is a responsible for determining the appropriate capital structure of the company

THE VP FOR FINANCE

To minimize the probability of failure long term investments have to be supported by a capital budgeting analysis which is among the responsibilities of finance manager.

Investing decisions

Is a technique used to determine the financial viability of long term investment

CAPITAL BUDGETING ANALYSIS

Basic financial statements

• STATEMENT OF FINANCIAL POSITION • STATEMENT OF CASH FLOWS • STATEMENT OF COMPREHENSIVE INCOME • STATEMENT OF CHANGES AND EQUITY

Is financial report provides information regarding the liquidity position and capital structure of a company as a given date.

STATEMENT OF FINANCIAL POSITION

Is the new name that the international accounting standard board ( IASBS ) suggested for the "balance sheet" since 2009 to better reflect the kind of information found in the financial report.

STATEMENT OF FINANCIAL POSITION

Refers to the ability of a company to pay maturing obligations. The current assets of a company are compared with its current liabilities to determine its paying capacity.

LIQUIDITY

Provides information regarding the revenues or sales expenses and net income of a company over a given accounting period.

STATEMENT OF PROFIT OR LOSS OR INCOME STATEMENT

This accounting period may be for a month a quarter or a year the income reported by a company is not that useful if the accounting period is not started

STATEMENT OF COMPREHENSIVE INCOME

Two options on how to present their statement of profit or loss based on the international accounting standard board ( IASB )

FIRST OPTION IS TO PRESENT IT AS A SEPARATE FINANCIAL STATEMENT. SECOND OPTION IS TO PRESENT IT TOGETHER WITH OTHER COMPREHENSIVE INCOME (OCI)

Represent transaction that are not reported in their profit or loss statement but affects the stockholders equity

OCI OTHER COMPREHENSIVE INCOME

Provides an explanation regarding the chance in cash balance from one accounting period to another. It is also classified into three main categories: operating, financing and investing.

STATEMENT OF CASH FLOWS

Is very important financial statement because it provides information regarding the quality of earnings of a company as shown in the cash flows from operating activities.

Statement of cash flows

This financial statement provides information that explains the changes in the stockholders equity account from one accounting period to another.

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

The noted to financial statement are integral part of the financial statements.

1. Brief description of the company. 2. Summary of significant accounting policies. 3. Breakdown of amounts found in the financial statement.

Financial statement

1. ANALYZING BUSINESS TRANSACTION 2. RECORDING JOURNALS 3. POSTING TO A LEDGER ACCOUNTS 4. PREPARING AN ADJUSTED TRIAL BALANCE 5. MAKING ADJUSTING ENTRIES a. ACCRUALS b. PREPAYMENTS c. DEPRECIATION AND ANALYZATION EXPENSES d. ALLOWANCES FOR UNCOLLECTED ACCOUNTS 6. PREPARING ADJUSTED TRIAL BALANCE 7. PREPARING THE FINANCIAL SHEET 8. MAKING CLOSING ENTRIES 9. POST CLOSING TRIAL BALANCE