NATURE, PURPOSE, SCOPE AND FUNCTIONS OF FINANCIAL MANAGEMENT

Question 1

It is a _________ concerned with planning, acquiring and utilizing funds in a manner that achieves the firm’s desired goals.

Answer 1

decision-making process

Question 2

Who is responsible for making significant corporate investment and financing decisions?

Answer 2

Finance Manager

Question 3

__________ works under the premise that the primary goal of the firm is to maximize shareholders’ wealth.

Answer 3

Modern managerial finance theory

Question 4

__________ acts in the shareholders’ best interests by making decisions that _______________.

Answer 4

Finance Manager, maximizes the market value of the company’s shares of stock

Question 5

SCOPE OF FINANCIAL MANAGEMENT

Answer 5

Procurement of short-term as well as long-term funds.

Mobilization of funds through financial instruments (equity shares, bonds, notes, etc.).

Compliance with legal and regulatory provisions relating to funds procurement, use and distribution as well as coordination of the finance function with the accounting function.

Question 6

How much and what type of assets to acquire?
Pertain to how managers must invest in various securities, instruments, assets etc.

Answer 6

Investment Decisions

Question 7

How to raise capital needed to buy assets?
To facilitate financing for the organization. To raise equity while reducing debt as much as possible.

Answer 7

Financing Decisions

Question 8

How much will be distributed to the owners, the frequency of such payments and amounts to be retained by the firm?
Involve how many profit portions to hand over to the shareholders in dividends. It also consists of the timing of giving dividends to the shareholders

Answer 8

Dividend Decision

Question 9

SIGNIFICANCE OF FINANCIAL MANAGEMENT

Answer 9

Broad applicability
Reduction of chances of failure
Measurement of return on investment

Question 10

Provides structure for decision-making in many important areas (provides a broader picture of economic environment).

Answer 10

Economics

Question 11

Provides financial data in various forms (financial statements).

Answer 11

Accounting

Question 12

Links economic theory with the number of accounting.

Answer 12

Finance

Question 13

Determining the proper amount of funds to employ in the firm through liquidity and profitability analysis of the company’s financial statement.

Answer 13

Financial analysis and planning

Question 14

Selecting the best projects in which to invest firm resources, based on consideration of risks and returns.

Answer 14

Investment decisions

Question 15

Outsourcing company funds (mix of debt and equity financing) to support firm’s operations and investment programs.

Answer 15

Financing and capital structure decision

Question 16

Managing the firm’s current assets and source of short-term credit in the most efficient manner.

Answer 16

Management of financial resources

Question 17

Managing the firm’s exposure to all types of risk (risk-return trade-off, a company doesn’t take additional risks unless it expects to be compensated with additional returns)

Answer 17

Risk management

Question 18

He oversees the assigned financial responsibilities carried out by the Treasurer and Controller.

Answer 18

VP of Finance or the CFO (Chief Financial Officer)

Question 19

Handles the accounting, taxation and management information system functions.

Answer 19

Controller

Question 20

Responsible for handling the firm’s cash and credit, capital budgeting and financial planning.

Answer 20

Treasurer

Question 21

A company does not take additional risks unless it expects to be compensated with additional returns.

Answer 21

Risk-Return Tradeoff

Question 22

A peso received today is worth more than a peso received in the future.

Answer 22

Time Value of Money

Question 23

Virtually all financial decisions are influenced by the effect of taxes

Answer 23

Tax Effects

Question 24

In managerial finance, cash is more important than profit.
This is also in the belief that proper management of cash would eventually lead to profits for the company.

Answer 24

Cash is King

Question 25

It’s only what changes that counts.

Answer 25

Incremental Cash Flows

Question 26

Doing the right thing - is always relevant.

Answer 26

Ethical Behavior

Question 27

It is the process of monitoring managers and aligning their incentives with shareholders’ goals.

Answer 27

Corporate Governance

Question 28

Are usually inactive and does not know what goes on at the firm’s operational level.

Answer 28

Shareholders

Question 29

Handle day to day operations are unknown to investors.

Answer 29

Managers

Question 30

The monitors inside the company are the ________, who are appointed to represent shareholders’ interests.

Answer 30

Board of Directors

Question 31

The monitors outside the company are the ________, ___________, ___________, _____, and the _________.

Answer 31

External Auditors
Investment Analysts
Credit Analysts
Banks
Government

Question 32

When faced with significant ethical issues, the employee should:

Answer 32

Follow the ESTABLISHED POLICIES of the organization bearing on the resolution of such conflict

Question 33

If these policies do no not resolve ethical conflict, the employee should consider:

Answer 33

DISCUSSING PROBLEMS WITH IMMEDIATE SUPERIOR (except when that superior is involved, the problem should be presented to the next higher management level)

If the immediate superior is the CEO or equivalent, the acceptable REVIEWING AUTHORITY may be a group such as AUDIT COMMITTEE, BOD, or OWNERS. Contact with LEVEL ABOVE the immediate superior should be initiated only with the superior’s knowledge, assuming the superior is not involved.

If after exhausting all levels of internal review and the CONFLICT STILL EXISTS, the employee may have no other option but to RESIGN from the organization.