Chapter 3 financial management lecture 1

Function of Financial management

1. CHAPTER 3 FUNCTIONS OF FINANCIAL MANAGEMENT

2. ROLE OF FINANCE MANAGER Having examined the field of finance and some of its more recent development, let us turn our attention to the function of the financial manager.

3. Impact on Risk and Return Affect the Market Price of Common Stock Lead to Shareholder's Wealth Maximization The financial manager’s role in achieving the gaol of the firm

4. In aiming to increase owners' or shareholders' wealth, the financial manager makes decisions involving, obtaining, and utilizing funds which involve a set of risk-return trade-offs. These financial decisions affect the market value of the firm's stock which leads to wealth development.

5. In the short run, many factors affect the market price of a firm's shares which are beyond management's control. In the long run, increased prices of the firm's stock reflect an increase in the value of the firm. Hence, financial decision making should take a prolonged point of view.

6. It is the responsibility of financial management to allocate funds the current and fixed assets, to obtain the best mix of financing alternatives, and to develop an appropriate dividend policy within the context of the firm's objectives. The daily activities of financial management include credit management, inventory control, and the receipt and disbursement of funds.

7. Risk-return trade-offs states that the potential return rises with an increase in risk . The risk-return decision will influence not only the operational side of the business (capital versus labor ) but also the financing mix (stocks versus bonds versus retained earnings).

8. Financial manager typically: Prepares financial statements, business activity reports, and forecasts, Monitors financial details to ensure that legal requirements are met, Supervises employees who do financial reporting and budgeting, Reviews company financial reports and seek ways to reduce costs, Analyses market trends to find opportunities for expansion or for acquiring other companies, Helps management make financial decisions.

9. Financial management Function is associated w/ TOP OFFICERS of the firm such as VICE PRESIDENT OF FINANCE or CHIEF FINANCE OFFICER (CFO). VICE PRESIDENT OR CFO of finance Coordinates the activities of TREASURER and the CONTROLLER. CONTROLLER offices Handles cost, and financial acct.,tax and management information system. TREASURER office Responsibles for cash, and credits, financial planning and capital expenditures.

10. Board Director Chairman of the board and chief Executive (CEO) President and Chief Operations Officer (COO) Vice President Marketing Vice President Finance (CFO) Vice President Prduction Treasurer Controller Credit Manage Cash Manage Financial Planning Capital Expenditure Cost Accounting Manager Tax Manage Data Processing Manager Financial Accounting Manager

11. RELATIONSHIP WITH OTHER KEY FUNCTIONAL MANAGERS IN THE ORGANIZATION

12. For business operations of a typical manufacturing firm we have: Finance which is one of the major functional areas of a business. Integral part of total management and cuts across functional boundaries . 2. Manufacturing deal with the design and production of a product . 3. Marketing involves the selling, promotion and distribution of a product.

13. Manufacturing and Marketing are critical for the survival of a firm because these areas determine what will be produced and how these products will be sold. However, Functional areas could not operate without funds. Finance deals with monetary aspects of a business ,the financial manager must interact with other managers to determined: 1. ascertain the goals that must be met 2. when to meet them 3. how to meet them

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15. Is the process of monitoring managers and aligning their incentives with shareholders are usually inactive. In reality, because shareholders are usually inactive, the firm seems belong t management. Generally speaking the investing public does not know what goes on at firms operational level.

16. MONITORS Inside the firm BOARD OF DIRECTROS Out side the firm Auditors Investment Analysts Investment Bankers Credit Analysts Hires CEO Evaluates management Represents shareholder’s interest Can also design compensation contracts for management salaries Managers Stockholders Keep track of firm’s performance, evaluates business activities and reports to investment community External auditors examine firm’s accounting systems and comment whether FS fairly represent the firm’s FP Examine a firm’s financial strength for its debt holders Government SEC, BIR, BSP Help firms access capital markets and monitors performance Corporate Governance Monitors

17. Ethical Behavior Primary importance in finance . Finance Professional commonly manages others money.

18. FIDUCIARY RELATIONSHIPS Create tempting opportunities for finance professionals to make decisions that either benefit the client or benefit the advisors themselves. PROFESSIONAL ASSOCIATIONS Finance Executives of the Philippines (FINEX) Bankers Association of the Philippines Investment Professionals

19. 1 . These professionals associations provided strong emphasis on ethical behavior and ethics training and standards . Any profession with millions of practitioners, a few are bound to act unethically . 3. Some instances, corporate governance system has created ethical dilemmas and has failed to prevent unethical managers from stealing firms from owners or stakeholders.

20. Ensuring compliance with ethical code of behaviors has passed by the governments all over the world . If some professionals do not act appropriately, governments set up strong punishment for financial fraud and abuse.

21. FINANCIAL MANAGER They owe the owners/shareholders the best decisions to protect and further shoulder interest; they also have a broader obligation to society as a whole.

22. Thank you. Merie Nes Villegas Danah Dela Rosa Jelly Joy Ramos Jhizevel Galorport Rona Mae Salazar Catheriene Abang