MODULE 1 Introduction to Financial Management

Have you ever tried to budget your money for a week or for a month? Have
you ever asked yourself how do companies and individuals acquire money
needed such as capital? All of this involved what we called finance.

Finance is a term for matters regarding the management, creation and

study of money and investments. Specifically, it deals with a term or
broadly describing the study and a system of money, investments and
other financial instruments.

Finance can be broadly divided into three categories: a.) public

finance, b.) corporate finance and c.) personal finance.

a. Public Finance includes tax systems, government expenditures,

budget procedures stabilization policy and instruments, debt issues and
other government concerns.
b. Corporate Finance involves managing assets, liabilities, revenues
and debt for a business. Business obtain financing through a variety
of means ranging from equity investments to credit arrangements.

c. Personal Finance defines all financial decisions and activities of

an individual or household, including budgeting, insurance,
mortgage planning, savings, and retirement planning. Personal finance
depends largely on one's earnings, living requirements, and individual goal
desire.
As a specialized field, personal finance is a recent development,
through the forms it has been taught in universities and school as
“home economics” or “consumer economics.”

The Financial Managers

The success of an operation of firms and markets can be achieved with

the help of the person involved in financing which is called financial
managers.
Financial managers perform data analysis and advise senior managers
on profit- maximizing ideas. Financial managers are responsible for the
financial health of an organization. They produce financial reports, direct
investment activities and develop strategies and plans for the long-term
financial goal of their organization.
There are two types of Financial manager; namely: a.) the controllers who
direct the preparation of financial reports and summarize and forecast
the organization’s financial position such as income statement and b.)
credit managers who oversee the firm’s credit business.
The Role of Financial Managers

The role of financial manager, particularly in business, is changing

in response to technological advances that have significantly reduced the
amount it takes to produce financial reports. Financial managers typically
perform different roles in the company such as:
• Prepare financial statements, business activity reports and forecasts •
Monitor financial details to ensure that the legal requirements are met •
Supervise employees who do financial reporting and budgeting • Review
company financial report and seek ways to reduce cost • Analyze market
trends to find opportunities for expansion or acquiring other companies.
• Help management makes financial decision.

Important Skills for Financial Manager

Analytical Skills- Financial managers increasingly assist executives

in making decisions that affect the organization, a task for which they need
analytical ability.
Communication Skills- Excellent communication are needed to explain
and justify complex financial transactions.
Attention Detail- in preparing and analyzing report such as balance
sheets and income statements, financial manager must pay attention to
detail.
Math Skills- Financial managers must be skilled in math including
algebra. An understanding of international finance and complex financial
documents also is important.

Organizational Skills- Financial managers deal with a range of

information and documents they must stay organized to do their jobs
respectively.

Other Financial Managers

In Entrepreneurship, the entrepreneurs are the CEO; in
Business Management, they are called the Business managers; and in a
company, they are the different managers.

1. Board of Directors. They set policies on investment, capital structure

and dividends. They also approve the company’s strategies, goals, and
budget and appoint and remove members of the top management
including president. They determine top management’s compensation.
2. President. They are responsible for overseeing the operations of
the company and ensuring that the strategies as approved by the board
are implemented as planned. They perform all areas of management
and represent the company in professional, social, and civic activities.
3. VP for Sales and Marketing. They are responsible for
formulating marketing strategies and plan, directing and coordinating
company sales and performing market and competitor analysis. They are
also involved in analyzing and evaluating effectiveness and cost of
marketing methods applied, conducting or directing research and
promoting good relationship with customers and distributors.
4. VP for Production - Ensuring production meets demand and
Identifying production technology/process that minimizes production cost
and makes the company cost competitive is the main role of VP for
production. They are also responsible for coming up with a production plan
and identifying adequate and competitively priced raw products.
5. VP for Administration. The main role of VP for Administration
is coordinating the functions of administration, finance, sales and
marketing departments. VP for Administration assists in other
departments in hiring employees and provides assistance in payroll
preparation.
6. VP for Finance- has the four following main role Financing,
Investing, operating and dividend policies.

What is Financial Instrument?

Financial instrument is the written legal obligation of one party to
transfer something of value-usually money to another party at some future
date under certain condition such as stocks, loans, or insurance. It is a
monetary contract between parties. Financial instrument serves as a
means of payment (like money) store of value (like money) allow for the
trading of risk.
Examples: bank loans future contracts
bonds stocks , mortgages insurance

Financial Instrument can be divided into two types:

a. Cash Instrument. The values of cash instruments are directly
influenced and determined by the markets. It may also be deposits and
loaned agreed upon by borrowers and lenders.

b. Derivative Instrument. The value and characteristics are based on

the vehicles underlying components such as assets, interest rates or
indices. An equity option contract, for example is a derivative because it
derives its value from the underlying stock.

What is a Financial Institution?

Financial Institution is a company engaged in business of dealing

with financial and monetary transactions such as deposits loans,
investments and currency exchange. Financial institution encompasses a
broad range of business operations with in the financial services sector
including banks, trust companies, brokerage firms and investment
dealers. Financial institution can vary by size scope and geography.
Examples: Brokerage firms
Insurance companies
Commercial and Investment bank

Types of a Financial Institutions

a. Commercial Bank – is a type of financial institution that accepts
deposits, offer checking account services, makes business, personal and
mortgage loans, and offer basic financial products like certificate of
deposits and saving account to individuals and small businesses. A
commercial bank is where people do their banking, as opposed to an
investment bank.

b. Investment Banks – it specialized in providing services designed

to facilitate business operations such as capital expenditure financing
and equity offerings including initial public offerings (IPOs).

c. Insurance Companies – it is the most familiar non-bank

financial institutions. Providing insurance whether for individuals or
corporations.

d. Brokerage Firms – investment companies and brokerages such as

mutual fund and exchange traded fund (ETF) provide investment services
that include wealth management and financial advisory services.

What is a Financial Market?

Financial Markets offer liquidity to borrowers and savers. Refer broadly
to any market place where the trading of securities occurs, including the
stock market, bond market, forex market and derivative market.
Types of Financial Markets

a. Over-the-counter Market – it is decentralized market meaning

it doesn’t have physical location and trading is conducted electronically
in which market participant trade securities directly between two parties
without a broker.

b. Bond Market – it sells securities such as notes and bills. A bond is a

security in which an investor loans money for a defined period at a pre-
established interest rate.

c. Money Market - trades in products with highly liquid, short-

term maturities and high degree of safety and a relatively low return
in interest. At the wholesale level, the money markets involved
large volume trades between institutions and traders. At the retail
level, they include money market mutual funds bought by
individual investors and money market accounts opened by bank
customers.
d. Derivatives Market - trades in future and option contracts and other advanced
financial products that derive their value from underlying instruments.

MODULE 2 Flow of Funds Within an Organization

MODULE 3 Financial Planning Process