MODULE 1 Flashcards
the science that describes the management,
creation and study of money, banking, credit,
investments, assets and liabilities
Finance
The definition of ____ takes into consideration
that it is a systematic process that is being
undertaken in managing the resources of institutions.
Finance
The ______ concept emerged from
economics and accounting.
financial management
Some termed financial management as _____. Its objectives are focused on it is the ____ and _____ ______, ______, and ______ of funds and maintenance and creation of economic value or wealth.
“managerial finance”
efficient and
effective allocation, acquisition, and utilization
Principles that form Financial Management (10)
Risk return tradeoff
Liquidity versus Profitability
Matching Principle
Leverage
Time Value of Money
Valuation
Bond Prices versus Interest Rates
Portfolio Effect (or Diversification)
Asset Selection
Risk Management
PRINCIPLE
In investment activities it is said that the higher the
risk of the investment made, the expected return is
as high as the risk involved.
Risk return tradeoff
PRINCIPLE
A trade-off between the liquidity and profitability;
when an organization chooses to be more profitable
it gives up some of its liquidity and vice versa.
Liquidity versus Profitability
PRINCIPLE
The firm’s assets should match the maturity of the liabilities. The short term assets are for short term liabilities and long term assets are for long term liabilities.
Matching Principle
PRINCIPLE
Determines the sensitivity of the earning of the firm to other measure. It is the magnification of the earnings which is from the firm’s fixed costs. This is categorize into : operating leverage; financial leverage and combined or total leverage
Leverage
PRINCIPLE
Money has a future value. A peso today does not have the
same value in the future. It can earn a return over a certain
period of time.
Time Value of Money
PRINCIPLE
Assets are valued based on the future cash flows it can
generate. The capitalization rate should provide either
acceptable return, given the risk of the investment.
Valuation
PRINCIPLE
As interest rates in the market rises, the prices of bonds will fall. The inverse relationship exist between the interest rates and price of fixed income securities.
Bond Prices versus Interest Rates
PRINCIPLE
The assets are grouped together to minimize the risk. The
correlation present in the portfolio of the asset being added
should be less than +1.0
Portfolio Effect (or Diversification)
PRINCIPLE
Selecting the right machinery and equipment
needed by a company in its operation is important
to attain its production foal that created sales.
Asset Selection
PRINCIPLE
Is a task so important to the firm to
weigh risks associated with certain business decisions.
The riskier the project, the higher should be the return
Risk Management
