Chapter 1: Introduction to Financial Management Flashcards
The study and management of money, assets, and investments to build wealth and achieve organizational goals.
Finance
Essential for acquiring, managing, and investing resources to achieve growth, stability, profitability, and liquidity within a business.
Finance
What are the 3 Areas of Finance?
- Financial Institutions and Markets
- Investments
- Financial Management
This area focuses on the interaction between fund providers and users, facilitated by financial intermediaries.
Financial Institutions and Markets
Involves the creation of financial assets, market regulations, and the trading of securities.
Financial Institutions and Markets
These play a crucial role in ensuring the efficient flow of capital and enabling economic growth.
Financial Institutions and Markets
What are examples of Financial Institutions and Markets?
- Banks
- Investment Firms
- Insurance Companies
Encompasses the buying and selling of financial securities, the analysis of investment opportunities, and the management of risks.
Investments
Both individuals and institutions participate in this domain to achieve their financial goals–whether it’s building wealth, securing retirement, or financing business expansions.
Investments
The process of raising, allocating, and controlling a firm’s funds.
Financial Management
This includes decisions about capital structure, working capital management, and the allocation of resources to maximize profitability and shareholder value.
Financial Management
Ensures the efficient use of financial resources to support the organization’s strategic objectives.
Financial Management
What are the 4 Categories of Finance?
- Public Finance
- Personal Finance
- Business Finance
- Non-profit Finance
Involves government revenues and expenditures and their impact on the economy.
Public Finance
Encompasses the management of public funds, taxation policies, and government budgeting.
Public Finance
Focuses on the management of an individual’s or household’s financial resources.
Personal Finance
Includes budgeting, saving, investing, and spending decisions to enhance one’s economic well-being.
Personal Finance
This category considers various investment options, benefits, and risks; these include banking products, insurance, and retirement.
Personal Finance
Involves the management of funds and assets within a company.
Business Finance
Differs from accounting in that it uses accounting data and draws from a broader range of disciplines like economics and business law to make informed decisions about the future operations of the business.
Business Finance
How is Business Finance different than Accounting?
- Accounting is focused on the business’ transactions and balancing the books; and
- Business Finance uses the data from accounting to make informed decisions for the future operations of the business.
For organizations that often rely on donations and grants that fund their operations and activities.
Non-profit Finance
Non-Profit Organizations (NGOs) must manage their finances in a manner that aligns with their mission and goals.
What are examples of the types of NGOs?
- Charities
- Educational Institutions
- Environmental Groups
What are the 3 Roles of the Finance Manager?
- Investment Decision
- Financing Decision
- Dividend Policy
Finance managers are responsible for allocating funds prudently, considering the associated risks and expected returns, to sustain the firm’s market value and ensure the long-term growth and profitability of the organization.
Investment Decision
Finance managers must choose the best financing mix, whether it’s short-term or long-term, to fund the firm’s operations and meet the expected returns for investors and stakeholders.
Financing Decision
This policy must balance the needs of attracting investors and and reflecting the company’s profitability and and growth potential.
Dividend Policy
What are the 4 Parts of the Philippine Financial System?
- Banking Institutions
- Non-Bank Financial Institutions
- Financial Intermediaries
- Financial Markets
Examples of which are either private (universal, commercial, thrift, rural, cooperative, and Islamic) or government-owned.
Banking Institutions
Examples of which are investment banks, insurance companies, credit unions, and pawnshops.
Non-Bank Financial Institutions
Acts as middlemen between those with excess funds (investors) and those in need of funds (borrowers).
Financial Intermediaries
Where buyers and sellers trade financial assets like stocks, bonds, and currencies.
Financial Markets
What are examples of Financial Markets?
- Money Market
- Capital Market
- Bond Market
- Stock Market
What are the 3 Types of Business Organizations?
- Sole Proprietorship
- Partnership
- Corporation
A business owned by a single person.
Sole Proprietorship
A type of business organization wherein…
PROS: Ease of formation, complete control for the owner, and simplified tax structures.
CONS: Limited life, unlimited liability, and difficulty in raising capital.
Sole Proprietorship
A business owned by two or more persons who share
profits.
Partnership
A type of business organization wherein…
PROS: Ease of formation, shared expertise, better capitalization.
CONS: Limited life, unlimited liability, and complex decision-making.
Partnership
A legal entity with rights and powers separate from its
owners (shareholders).
Corporation
A type of business organization wherein…
PROS: Limited liability, indefinite life, and ease of obtaining capital.
CONS: Double taxation, more government control.
Corporation
What are the 3 elements highlighted in The Organizational Goal: Maximizing Shareholder Wealth?
- Unlimited Wants, Limited Resources
- Spending vs. Investing
- Finance Manager’s Role
Because of this, people seek
to maximize their satisfaction through spending, saving, or
investing.
Unlimited Wants, Limited Resources
Doing this provides immediate satisfaction but no future returns.
Spending
Doing this grows wealth but delays gratification.
Investing
Their job is to ensure the firm’s
products and services grow investors’ wealth, thereby maximizing stockholder value.
Finance Manager
What are the 3 Importance of Finance for Business Sustainability?
- Financial Planning
- Better Investment Decisions
- Informed Economic Decisions
Individuals and firms create financial plans to effectively acquire, manage, and allocate funds, which is is crucial for business sustainability.
Financial Planning
Finance education equips investors with the knowledge to make informed decisions. This enhances their potential returns and contributes to the overall success of the business.
Better Investment Decisions
Understanding finance helps in making sound financial and economic choices. This is essential for both personal and organizational prosperity and longevity.
Informed Economic Decisions
What are the 3 Key Roles in Financial Management?
- Chief Finance Officer (CFO)
- Treasurer
- Controller
Oversees all financial activities within the organization, reporting directly to the president or board of directors.
Chief Finance Officer (CFO)
Responsible for managing the external financial matters of the business. This includes investments, capital budgeting, and risk management, supporting the overall financial strategy of the organization.
Treasurer
Handles the internal financial affairs of the company. This is including accounting, financial reporting, and asset protection, ensuring the accuracy and integrity of the organization’s financial information.
Controller
Who controls the foreign exchange and stock market in the Philippines?
Bangko Sentral ng Pilipinas
