NATURE, PURPOSE, SCOPE AND FUNCTIONS OF FINANCIAL MANAGEMENT Flashcards
It is a _________ concerned with planning, acquiring and utilizing funds in a manner that achieves the firm’s desired goals.
decision-making process
Who is responsible for making significant corporate investment and financing decisions?
Finance Manager
__________ works under the premise that the primary goal of the firm is to maximize shareholders’ wealth.
Modern managerial finance theory
__________ acts in the shareholders’ best interests by making decisions that _______________.
Finance Manager, maximizes the market value of the company’s shares of stock
SCOPE OF FINANCIAL MANAGEMENT
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.
How much and what type of assets to acquire?
Pertain to how managers must invest in various securities, instruments, assets etc.
Investment Decisions
How to raise capital needed to buy assets?
To facilitate financing for the organization. To raise equity while reducing debt as much as possible.
Financing Decisions
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
Dividend Decision
SIGNIFICANCE OF FINANCIAL MANAGEMENT
Broad applicability
Reduction of chances of failure
Measurement of return on investment
Provides structure for decision-making in many important areas (provides a broader picture of economic environment).
Economics
Provides financial data in various forms (financial statements).
Accounting
Links economic theory with the number of accounting.
Finance
Determining the proper amount of funds to employ in the firm through liquidity and profitability analysis of the company’s financial statement.
Financial analysis and planning
Selecting the best projects in which to invest firm resources, based on consideration of risks and returns.
Investment decisions
Outsourcing company funds (mix of debt and equity financing) to support firm’s operations and investment programs.
Financing and capital structure decision
Managing the firm’s current assets and source of short-term credit in the most efficient manner.
Management of financial resources
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)
Risk management
He oversees the assigned financial responsibilities carried out by the Treasurer and Controller.
VP of Finance or the CFO (Chief Financial Officer)
Handles the accounting, taxation and management information system functions.
Controller
Responsible for handling the firm’s cash and credit, capital budgeting and financial planning.
Treasurer
A company does not take additional risks unless it expects to be compensated with additional returns.
Risk-Return Tradeoff
A peso received today is worth more than a peso received in the future.
Time Value of Money
Virtually all financial decisions are influenced by the effect of taxes
Tax Effects
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.
Cash is King
It’s only what changes that counts.
Incremental Cash Flows
Doing the right thing - is always relevant.
Ethical Behavior
It is the process of monitoring managers and aligning their incentives with shareholders’ goals.
Corporate Governance
Are usually inactive and does not know what goes on at the firm’s operational level.
Shareholders
Handle day to day operations are unknown to investors.
Managers
The monitors inside the company are the ________, who are appointed to represent shareholders’ interests.
Board of Directors
The monitors outside the company are the ________, ___________, ___________, _____, and the _________.
External Auditors
Investment Analysts
Credit Analysts
Banks
Government
When faced with significant ethical issues, the employee should:
Follow the ESTABLISHED POLICIES of the organization bearing on the resolution of such conflict
If these policies do no not resolve ethical conflict, the employee should consider:
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.
