Chapter 1

FINANCIAL
MANAGEMENT
INTRODUCTION TO FINANCIAL MANAGEMENT
It is well-known fact that engaging in business is like gambling, it is too risky.
There is a need to have enough capital in putting up a business to be used for operations
and investments.
The business may be in a form of sole proprietorship, partnership or corporation.
Capital and funds must be managed properly in order to attain the operating and financial
objectives of the business.
In a corporate form of business, there is a need to employ separate
managers who will govern the business in behalf of the owners
known as shareholders.
Discussions:
-Kinds of business organizations and their
-Who are the financial managers and what
goals
are their roles
-Different characteristics of these business
-What is agency conflicts
organizations
-Priority between ethics and profit goals
-Different kinds of corporations that are
acceptable and
not acceptable under Philippine laws
FINANCIAL MANAGEMENT
Is the process of planning, directing, organizing, controlling and
monitoring of the monetary resources in order to achieve objectives
and goals of the business.
The financial managers are responsible for the management of

these monetary resources of the business.
KINDS OF BUSINESS ORGANIZATIONS
A. SOLE
PROPRIETORSHIP
- owned by an
individual (sole
proprietor)
ADVANTAGES:
DISADVANTAGES:
• - simplest form of business organization - Unlimited personal liability
• - fewer government regulations - Limited lifetime of business
• - registration only through DTI (lower income tax) - Difficult to raise capital
B. PARTNERSHIP – is a contract of two or more persons who binds themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits
among themselves.
- partnership may be
constituted in any form
- Limited Life whether oral or written
- contract of partnership having a capital of

Three Thousand Pesos (P3000) or more, in
money or property is required to be:
- Classified as General • Public Instrument
or Limited Partnership • Recorded in the Office of the Securities and Exchange
Commission (SEC)
DISSOLUTION OF THE PARTNERSHIP
D – eath of the partner/s
I – ncorporation of
partnership
W- ithdrawal/Retirement
of a partner/s
A – dmission of a
partner/s
C. CORPORATION – is
an artificial being
created by the
operation of the law, - most
having the right of complex
- unlimited
- stricter - owners are
- limited
succession and the form of government called
life liability
business regulations shareholders
powers, attributes organization
and properties
expressly authorized
by law.
TYPES OF CORPORATION
A. AS TO LEGAL STATUS
❑De Jure Corporation – a corporation organized in accordance with the law. Strict or substantial
compliance with the statutory requirements for its corporation.
❑De Facto Corporation – a corporation that exist only in fact but not in law.
B. AS TO FUNCTIONS AND GOVERNING LAW
❑Public Corporation – organized by the state for the government to promote general welfare of
the public.
❑Private Corporation – organized by private individuals for the purpose of generating profits.
TYPES OF CORPORATION
C. AS TO EXISTENCE OF STOCKS:
❑Stock Corporation – corporation in which capital stock is divided into shares and is authorized to
distribute to the holders thereof of such shares dividends or allotments of the surplus profits on
the basis of the shares held. The owners are called as shareholders or stockholders.
❑Non-stock Corporation – corporation which has no stocks issuances and no distribution of
dividends to its members.
D. AS TO SHARES BEING TRADED IN STOCK EXCHANGE
❑Publicly listed company – a corporation whose shares are offered to public or traded in the
Philippine stock exchange.
❑Privately owned company – a corporation whose shares are not traded in the stock market.
CORPORATIONS NOT ACCEPTABLE IN
PHILIPPINE LAW
Limited Liability Company – business structure
which combines the tax advantage of a
partnership (General Professional Partnership)
and limited liability advantage of a corporation.
Professional Corporation – composed of persons

with same professions such as Doctors, Lawyers,
or Certified Public Accountants.
GOALS OF THE CORPORATION
❑Sole proprietorship, Partnership or Corporation – maximizing earnings or profits.
❑ Profit maximization – end goal of sole proprietor or partners
❑Shareholder’s wealth/Stock Price maximization – ultimate goal of corporation
Stock Price maximization – increase in the value of stock price.
INAPPROPRIATE WAYS ON HOW
MANAGEMENT MAXIMIZES THE PROFIT OF
THE CORPORATION
A. Management wants to accelerate sales B. Management wants to reduce expenses

by materially increasing the selling prices by cutting wage rates of the laborers or
of the goods offered to the consumers, or buying cheaper materials for production.
FINANCIAL MANAGERS OF THE
CORPORATION
Financial Managers – employees who are responsible for managing the monetary resources of
the corporation in order to maximize firm’s value.
FINANCIAL MANAGERS ARE:
❑Board of Directors (BOD) – direct owners and are elected by the shareholders to manage the
corporation.
❑Chief Financial Officer (CFO) – also known as the Vice President for Finance who has
responsibility over financial planning and formulation of financial corporate strategies.
❑Treasurer – one who focuses on the financial aspect of the corporation. Responsibility on raising
and managing the capital and funds of the company.
❑Controller – one who focuses on the accounting and budgeting aspect of the corporation
GENERAL ROLE OF FINANCIAL
MANAGER
Financial Managers shall perform these roles which are geared towards the attainment of the
ultimate goal of the corporation:
❑INVESTING DECISION – investments made by financial managers should provide benefit to the
corporation in the future.
❑FINANCING DECISION – financial manager should raise capital or money through its financing
activities.
❑OPERATING DECISION – financial manager should decide on how much funds should be
allocated to each of its operating units in order to support the daily operations of the
corporation.
RESOLUTION OF AGENCY PROBLEMS
Agency conflicts – problems between the agency and the principal.

Conflict arises when the financial managers (agents) prioritize their own personal interest rather
than the best interest of the shareholders of the company (principal)
SOLUTIONS TO MITIGATE CONFLICTS
❑COMPENSATION PLANS
X and Y are CEOs’ of two different company. X is given an additional incentive of 5% of the net
income above the normal profitability of the corporation aside from his basic salary while the
CEO Y is only provided with the annual salary similar to X. Who will be more driven to improve his
performance?
❑THREATS AS TO CHANGE IN BOARD OF DIRECTORS
❑THREATS AS TO MANAGEMENT TAKEOVER
❑LEGAL AND REGULATORY REQUIREMENTS
❑SPECIALIST MONITORING
CONFLICTS BETWEEN STOCKHOLDERS
AND BONDHOLDERS
Conflicts between two sources of funds
Stockholders vs Bondholders
STOCKHOLDERS – invest in risky investments (THE HIGHER THE RISK THE HIGHER THE RETURN)
BONDHOLDERS – oppose to risky investments
QUESTION:
If the financial managers of the firm have the option to invest its P100M in the following unit
investment trust funds (UITF):
A. 100% equity fund (high risk)
B. 50% equity and 50% debt (balanced fund)
C. 100% debt fund (Low Risk)
What type of fund will stockholders choose?
What type of fund will bondholders choose?
ETHICAL CONSIDERATIONS
The ultimate goal of the
corporation is maximizing
the firm’s market value or
the maximization of the
shareholder’s wealth.
Maintain Corporate Goal should be

Social Responsibility achieved not through
(CSR) fraudulent acts but in
an ethical manner.

Chapter 1

Uploaded by

Copyright:

Available Formats

Chapter 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 1

Uploaded by

Copyright:

Available Formats

FINANCIAL

The business may be in a form of sole proprietorship, partnership or corporation.

The financial managers are responsible for the management of

- contract of partnership having a capital of

Professional Corporation – composed of persons

A. Management wants to accelerate sales B. Management wants to reduce expenses

Agency conflicts – problems between the agency and the principal.

Maintain Corporate Goal should be

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.