Department of Education

Bureau of Learning Delivery

Teaching and Learning Division

Quarter 1 Week 1 Module 1

BUSINESS FINANCE
IDENTIFYING THE ROLES IN A
CORPORATE ORGANIZATION

Learning Competencies:
 Explain the major role of financial management and
the different individuals involved. (ABM_BF12-IIIa-1)
 Explain the flow of funds within an organization – through
and from enterprise—and the role of the
financial manager. (ABM_BF12-IIIa-5)
 HOW TO USE THIS MODULE?

Before starting the module, I want you to set aside other

task/s that may disturb you while enjoying the lessons. Read the
simple instructions below to successfully enjoy the objectives of
this kit. Have fun!

Follow carefully all the contents and instructions

indicated in every page of this module.
Write on your notebook the concepts about the lessons.
Writing enhances learning, that is important to develop
and keep in mind.
Perform all the provided activities in the module.
Let your facilitator/guardian assess your answers using
the answer key card.
Analyze conceptually the posttest and apply what you
have learned.
Enjoy studying!

PARTS OF THE MODULE

 Expectations - These are what you will be able to know after
completing the lessons in the module.
 Pre-test - This will measure your prior knowledge and the
concepts to be mastered throughout the lesson.
 Looking Back to your Lesson - This section will measure what
learnings and skills did you understand from the previous lesson.
 Brief Introduction- This section will give you an overview of the
lesson.
 Activities - This is a set of activities you will perform with a
partner.
 Remember - This section summarizes the concepts and
applications of the lessons.
 Check your Understanding - It will verify how you learned from the
lesson.
 Post-test - This will measure how much you have learned from the
entire module

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 LESSON Define Finance and Identifying the Roles
in a Corporate Organization
1

EXPECTATIONS

In This module, you will be able to:

• explain the major roles of financial management and the different
individuals involved.
 explain the flow of funds within an organization – through and
from the enterprise—and the role of the financial manager.

Specifically, this module will help you to:

 define finance and understand the key positions in a corporate
organization and identify the roles of each.
 identify the primary activities of the financial manager.

Let us start your journey in learning more on what is Finance and

identifying the roles in a Corporate Organization. I am sure you are ready and
excited to answer the Pretest. Smile.

PRETEST

I. Fill in the blanks.

Direction: Identify the following. Write your answer in the blank space provided
below.

1. ____________as the management of money, banking, investments, and credit.

It is also defined as a science of management of money and other assets.

2. The analyze and evaluate the effectiveness and cost

of marketing methods applied.
3. The elect the Board of Directors (BOD).
4. The oversee the operations of a company and ensure
that the strategies as approved by the board are implemented as planned.

5. The provide assistance in payroll preparation,

payment of vendors, and collection of receivables.

3
 II. TRUE or FALSE
Direction: Before each statement, write TRUE if the statement is correct
or FALSE if the statement is incorrect.
1. Capital structure refers to how much of your total assets
is financed by debt and how much is financed by equity.
2. Short term investment decisions are needed when the
company is in an excess cash position.
3. The mix of debt and equity varies in different corporations
depending on management’s strategies.

4. Managers’ credit are the amounts owed to suppliers for the

inventories they delivered or services they provided.

6. It is not the role of a financial manager to determine when the company

should declare cash dividends.

Great, you finished answering the Pre test. Keep learning on. Smile.

Let us start by answering these questions.

What is finance?
What immediately comes to4
your mind when you hear
finance?
 DISCUSSION

The American Heritage Desk Dictionary defines finance as the management of money, banking,
investments, and credit.
It is also defined as a science of management of money and other assets.
This definition suggests that finance is directly related to money or to a business activity that
primarily deals with money transaction.
FINANCE – is both a science and an art of correct application of the economic and accounting
concepts and principles that define the system, structure, and process of management, allocation
and utilization of financial resources, investments, and expenditures.
This definition will be applied to all the discussions in this book. Remember the following key
concepts of finance:
1. Both a science and an art
2. Application of economic and accounting concepts and principles
3. System, structure, and process
4. Management, allocation, and utilization
5. Financial resources, investments, and expenditures.
The Corporate Organization Structure

Every organization has corporate structure to illustrate the roles and

functions of each employee. It also shows the corporate organization structure and
inform them that this particular set of people each play a role in the decision
making of the company.

Figure 1

Finance Officer plays a crucial role in the whole business

organization. He or she act acts as the wary financial traffic officer to
almost all business transactions with monetary considerations.

Figure 2.

From the diagram presented, each line is working for the interest of the
person on the line above them. Since the managers of the company are
making decisions for the interest of the board of directors and the board of
directors do the same for the interests of the shareholders, it follows that the
goal of each individual in a corporate organization should have an objective of
shareholders’ wealth maximization. (Cayanan, A. 2015)

Let us discuss briefly the roles of each position identified. Enjoy learning.

Shareholders: The shareholders elect the Board of Directors (BOD). Each

share held is equal to one voting right. Since the BOD is elected by the
shareholders, their responsibility is to carry out the objectives of the
shareholders otherwise; they would not have been elected in that position.
Board of Directors: The board of directors is the highest policy making
body in a corporation. The board’s primary responsibility is to ensure
that the corporation is operating to serve the best interest of the
stockholders.

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 ***THE RESPONSIBILITIES OF A BOARD OF DIRECTORS***
1. Setting policies on investments, capital structure and dividend policies.
2. Approving company’s strategies, goals and budgets.
3. Appointing and removing members of the top management including
the president.
4. Determining top management’s compensation.
5. Approving the information and other disclosures reported in the
Financial statements (Cayanan 2015)

***THE RESPONSIBILITIES OF A PRESIDENT OR CHIEF EXECUTIVE OFFICER

(CEO)***
1. Overseeing the operations of a company and ensuring that the
strategies as approved by the board are implemented as planned.
2. Performing all areas of management: planning, organizing, staffing,
directing and controlling.
3. Representing the company in professional, social, and civic activities.
4. Carries out the decision making for all functions

VP for Marketing: The following are among the responsibilities of VP for Marketing
1. Formulating marketing strategies and plans.
2. Directing and coordinating company sales.
3. Performing market and competitor analysis.
4. Analyzing and evaluating the effectiveness and cost of marketing methods
applied.
5. Conducting or directing research that will allow the company identify new
marketing opportunities, e.g. variants of the existing products/services
already offered in the market.
6.Promoting good relationships with customers and distributors.
(Cayanan, A. 2015)

VP for Production: The following are among the responsibilities of VP for

Production:
- Ensuring production meets customer demands.
- Identifying production technology/process that minimizes production
cost and make the company cost competitive.
- Coming up with a production plan that maximizes the utilization of
the company’s production facilities.
- Identifying adequate and cheap raw material suppliers. (Cayanan,
A. 2015)

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 VP for Administration: The following are among the responsibilities of VP
for Administration:

1. Coordinating the functions of administration, finance, and marketing

departments.

2. Assisting other departments in hiring employees.

3. Providing assistance in payroll preparation, payment of vendors,

and collection of receivables.

4. Determining the location and the maximum amount of office space

needed by the company.

5. Identifying means, processes, or systems that will minimize the operating

costs of the company. (Cayanan, A. 2015)

LESSON Flow of Funds within an Organization through and

2 from Enterprise and the role of the Financial
Manager/Officer

Finance Manager/Officer plays a crucial role in the whole business

organization. He or she act acts as the wary financial traffic officer to almost all
business transactions with monetary considerations.

Functions of a Financial Manager

The four functions of a VP for finance (CFO) are as follows:

 - Financing
- Investing
- Operating
- Dividend Policies

Recall from the previous lesson that there are situations when we are
faced with lack of funds. Financing decisions include making decisions on how
to fund long term investments (such as company expansions) and
working capital which deals with the day to day operations of the company
(i.e., purchase of inventory, payment of operating expenses, etc.).

The role of the VP for Finance of the Financial Manager is to determine

the appropriate capital structure of the company. Capital structure refers to
how much of your total assets is financed by debt and how much is financed
by equity. To illustrate, show/draw the figure below:

7
 Recall that Assets = Liabilities + Owner’s Equity. To be able to
acquire assets, our funds must have come somewhere. If it was bought using
cash from our pockets, it is financed by equity.

On the other hand, if we used money from our borrowings, the asset
bought is financed by debt. In the figure above, the total assets is financed
by 60% debt and 40% equity.

Accordingly, the capital structure is 60% debt and 40% equity. Try to
analyse. Are there ideal mixture of debt and equity across corporations? Try
to express inner understanding as a manager. Explain your answer.

8
 Learning Module for Business Finance

The answer is None.

The mix of debt and equity varies in different corporations depending on

management’s strategies. It is the responsibility of the Financial Manager
to determine which type of financing (debt or equity) is best for the company.

Recall that, investing is where to put your excess cash to make it more
profitable. We expand that definition by including cash held taken from
funds as a result of financing decisions. Investments may either be short
term or long term.

Short term investment decisions are

needed when the company is in an excess
cash position. To plan for this, the Financial
Manager should be able to make use of
Financial Planning tools such as budgeting
and forecasting. Moreover, the company
should choose which type of investment it
should invest in that would provide a most
optimal risk and return trade off. https://int.search.myway.com/search/AJimage.jhtml?

Long term investments should be supported by a

capital budgeting analysis which is among the
responsibilities of a finance manager.
Capital budgeting analysis is a tool to assess
whether the investment will be profitable in the
long run. This is a crucial function of
management especially if this investment would
be financed by debt. The lenders should have
the confidence that the investments that
management will push through with will be
profitable or else they would not lend the
company any money. https://int.search.myway.com/search/AJimage.jhtml?

Operating decisions deal with the daily operations of the company. The role of
the VP for finance is determining how to finance working capital accounts
such as accounts receivable and inventories. The company has a choice on
whether to finance working capital needs by long term or short term sources.
Why does a Financial Manager need to choose which source of financing a
company should use? What do they need to consider in making this
decision?

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Short Term sources are those that will be payable in at most 12 months. This
includes short-term loans with banks and suppliers’ credit. For short-term
bank loans, the interest rate is generally lower as compared to that of long-
term loans. Hence, this would lead to a lower financing cost. Suppliers’
credits are the amounts owed to suppliers for the inventories they delivered
or services they provided.

Long term sources, on the other hand, mature in longer periods. Since this
will be paid much later, the lenders expect more risk and place a higher
interest rate which makes the cost of long term sources higher than short
term sources. However, since long term sources have a longer time to
mature, it gives the company more time to accumulate cash to pay off the
obligation in the future.

Dividend Policies. Recall that cash dividends are paid by corporations to

existing shareholders based on their shareholdings in the company as a
return on their investment. Some investors buy stocks because of the
dividends they expect to receive from the company. Non-declaration of
dividends may disappoint these investors. Hence, it is the role of a financial
manager to determine when the company should declare cash dividends.

Before a company may be able to declare cash dividends, two

conditions must exist:

1. The company must have enough retained earnings (accumulated

profits) to support cash dividend declaration.
2. The company must have cash.

What do you think will be the effect of the decision of management in

paying dividends? Remember that dividends come from the company’s
cash and availability of unrestricted retained earnings.

Recall that one of the functions of a finance manager is investing and its
available cash may be used to invest in long term investments that would
increase the profitability of the company. Some small enterprises which are
undergoing expansion may have limited access to long term financing (both
long term debt and equity). This results to these small companies reinvesting
their earnings into their business rather than paying them out as dividends.

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Answer Key:
 • Availability of financially viable long-term investment
• Access to long term sources of funds
• Management’s Target Capital structure

On the other hand, companies which have access to long term sources
of funds may be able to declare dividends even if they are faced with
investment opportunities. However these investment opportunities are
financed by both debt and equity. The management usually appropriates a
portion of retained earnings for investment undertakings and this may limit
the amount of retained earnings available for dividend declaration. Examples
of these companies are companies such as PLDT, Globe Telecom, and
Petron. (information as of 2014).

Message from the CFOs Reflect on the quotes

Take the Challenge cited and mention how critical and dynamic working
in the finance field is. Share the
following quotes from the Chief Financial
Officers (CFOs) of the respective corporations.

Unilever: ―Finance plays a critical role across every aspect of our business.
We enable the business to turn our ambition and strategy into sustainable,
consistent and superior performance‖ - Jean-Marc Huët (Unilever)

Jollibee: ―It’s very exciting because you are not just thinking of today but
what the company will need in the future‖ - Ysmael V. Baysa Morales,2013)

SM Corporation: ―Now, we don’t go out because we need funds. We go

out because it’s an opportunity.‖ – Jose T. Sio (Montealegre, 2015)

ACTIVITIES

Activity 1. Directions: Answer the following questions to enhance your

critical thinking skills as a future financial manager of a company.
a) Why should shareholder wealth maximization be the overriding
objective of management?

b) What other positions can you think of that are related to financial
management?

11

Activity 2.
Directions: Discuss briefly the roles of each position identified. Write
your answer on the space provided for each item.
a. Shareholders

b. Board of Directors

c. President (CEO)

d. VP for Marketing

e. VP for Production

f. VP for Administration

g. VP for Finance

REMEMBER

 A Financial Manager is part of a management team whose ultimate goal is

to maximize shareholders wealth.
 The president cannot manage the company on his own, especially when the
corporation has become too big. To assist him are the vice presidents of
different functional areas: finance, marketing, production and
administration.
 Financing decisions include making decisions on how to fund long term
investments (such as company expansions) and working capital which deals
with the day to day operations of the company (i.e., purchase of inventory,
payment of operating expenses).
 Before a company may be able to declare cash dividends, two conditions
must exist:
1. The company must have enough retained earnings (accumulated
profits) to support cash dividend declaration.
2. The company must have cash.
 One of the functions of a finance manager is investing and its available
cash may be used to invest in long term investments that would increase
the profitability of the company.

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 CHECK YOUR UNDERSTANDING

Directions: Analyze and answer the question briefly.

1. Why does a Financial Manager need to choose which source of financing a

company should use? What do they need to consider in making this
decisions?

2. Globe Telecom: ―Yesterday’s solutions are never adequate for the future‖ –
Albert De Larrazabal (Klobucher, 2015). Explain briefly.

POSTTEST

I. MULTIPLE CHOICE
Direction: Choose the letter corresponding to the correct answer for each of
the questions provided below.
1. The role of the is to determine the appropriate
capital structure of the company.
a. VP for Marketing
b. VP for Finance of the Financial Manager
c. VP for Production
d. VP for Administration
2. is a tool to assess whether the investment will
be profitable in the long run.
a. Capital budgeting analysis
b. Chief Financial Officer
c. Shareholders
d. Dividend policies
e. Short term investment

13
3. include making decisions on how to fund long term
investments (such as company expansions) and working capital which deals
with the day to day operations of the company.
a. Sources of funds
b. Short term investment decisions
c. Issuance of new shares
d. Financing decisions
e.
4. Capital structure refers to how much of your total assets is financed by debt
and how much is financed by equity.
a. Capital structure
b. Dividend Policies
c. Retained earnings for investment
d. Long term investment decisions
5. If we used the money from our borrowings, the asset bought is financed by
.
a. Equity
b. Raw material suppliers
c. Debt
d. Cash dividends

REFLECTIVE LEARNING SHEET

Have you ever

wondered what the best things
are that you can do for your
money and your financial future?
What's the Smartest Thing You
Do for Your Money? You
probably have bright ideas about
smart things to do for your
money and finances that others
would like to know about too.
Leave a comment on this page
and share
your good ideas!

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REFERENCES:

To explore more about the topic please go to this link:

https://smallbusiness.chron.com/business-financing-problems-292.html

Cayanan, A. & Borja (forthcoming). Business Finance.

Quezon City. Rex Bookstore.

Gitman, L. J. & Zutter C. J. (2012), Principles of Managerial Finance

(13th Ed), USA: Prentice-Hall

https://smallbusiness.chron.com/business-financing-problems-292.html.
Retrieved June 17, 2020
https://www.investopedia.com/terms/c/corporatefinance.asp.
Retrieved June 17, 2020
https://corporatefinanceinstitute.com/resources/knowledge/finance/corpora
te-finance-industry/. Retrieved June 17, 2020
https://www.cleverism.com/corporate-finance-essentials

Acknowledgment

Prepared by: Letessie A. Diano

ABM Teacher
Mandaue City Comprehensive NHS
ANSWER KEY