Republic of the Philippines

MAILA ROSARIO COLLEGE

Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

COLLEGE OF BUSINESS ADMINISTRATION

MAJOR IN FINANCIAL MANAGEMENT
1st SEMESTER, S.Y. 2021 – 2022
PRELIM COVERAGE

Module in
FINANCIAL MANAGEMENT

MODULE NO.: 03

NAME OF STUDENT: ___________________________________________________

YEAR / SECTION: ______________________________________________________
DATE RECEIVED: ______________________________________________________

INSTRUCTOR: ELEINE T. ALVAREZ

NOTE: Please be cautious in following the given instructions in each activity. Correspondingly, observe
punctuality in accomplishing this module. God bless and happy learning! – INSTRUCTOR
 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

I. OVERVIEW
This module focus is to develop analytical and evaluating skills connected to context
and content financial management:
1.The role of financial managers
2.profit maximization vs. stockholder’s wealth maximization
3.financial decisions and risk-return trade-off
4. agency theory
5. misconceptions about financial management
6. social responsibility
7. Financial statement, components and limitations

II. LEARNING OBJECTIVES

In this learning module, the learner is expected to:
a. Distinguish profit maximization from stockholders’ wealth maximization
b. Identify the primary functions of finance manager
c. Analyze problems that are applicable to finance
d. Discuss the elements and limitations of financial statements

III. GUIDE QUESTIONS

1.What does financial management main goal?
2. What are the roles financial managers?
3. What is financial statement?

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

IV. LESSON PROPER

Financial Decisions and Risk-Return Trade-Off

❑ Increase in return is coupled by a corresponding increase in risk.
❑ Risk means the unexpected, uncertain, and unacceptable outcome of
an investment.
❑ Return means a gain or a loss in an investment.

AGENCY THEORY
❑ Poses a potential conflict of interest between the stockholders and
managers.
❑ Exists due to the creation of an agency relationship.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

❑ Principals hire the service of an agent to perform a service and exercise

decision-making for the principal.

Agency Relationships between:

❑ Stockholders and managers
- When the managers do not own even a small amount of
percentage in the company’s stocks, the agency encourage them
to act in maximizing stockholders’ wealth by giving them
incentives for good performance and punishment for poor
performance.
❑ Stockholders and creditors
- When the management undertake a huge project that is too risky,
creditors may tend to increase interest rate but providing a small
amount of loan. If the project succeeds, well and good but if it
fails, the creditors attempt to protect themselves by putting
restrictive covenants of the loans.
MISCONCEPCION
❑ Financial Management is Accounting
▪ Tools in making decision are different from the ones used in
accounting.
▪ Accounting has standards to be followed while there is none in
financial management.
▪ Accounting provides information for multiple uses while in
financial management, decision-making is directed to specific
financial user.

❑ Financial Management is a review of Mathematics

▪ Financial decisions are made through a lot of formulas thus
making mathematics as one of the tools used in decision-making
like accounting.

❑ Financial Management is a branch of Statistics

▪ Statistics was only used as a tool in ascertain the risks involved in
decision-making.
Social Responsibility
❑ Primary responsibility is to maximize the shareholder’s wealth through
the market price of the stock.
❑ To their employees by providing them with good working conditions.
❑ To the environment by not polluting the air and water.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

❑ To their customers by producing quality goods and services in the most

efficient way.
❑ Implies additional costs to the company.

FINANCIAL STATEMENTS
❑ The summarized data of a company’s assets, liabilities, and equities in
the balance sheet and its revenue and expenses in the income
statement.
❑ Provide information about the financial position, result of operations,
and cash flows of an enterprise in the past and its prospects in the
future that is useful for decision-making to a wide range of users.
❑ Tool in ascertaining the company’s capability to produce cash in
making payments.

BALANCE SHEET
➢ A statement showing the financial position of the company at a
particular time.
➢ Composed of the company’s assets and liabilities and stockholders’
equity.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

INCOME STATEMENT
➢ A formal statement that shows the result of the operations for a certain
period of time.
➢ Presents the revenue generated during the operating period, expenses
incurred, and company’s net earnings.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

STATEMENT OF STOCKHOLDERS’ EQUITY

➢ A statement that shows the movements in the components of the
equity.
MAJOR ELEMENTS
A. Issuance Of Stocks
• These are the common or preferred stock issued during the
year
B. Retained Earnings
• It is the accumulated income or loss of the company
covering the past years of operations
C. Declaration Of Cash Dividends
• The dividends declared for the year are shown as a
deduction from the retained earnings
D. Distribution Of Stock Dividends
• It discloses the stock dividend rate and the amount of stock
dividends distributed to stockholders. This amount is also
shown as a deduction from retained earnings.
E. Purchase And Sale of Treasury Stock
• It includes the firm's stocks originally issued but were
bought back and were not retired. The sale of treasury stock
is shown as an addition to stockholders' equity while the
purchase is shown as a deduction.
F. Accumulated Other Comprehensive Income
• This category includes unrealized gains and losses and
variable-for-sale investments and foreign-currency
translation adjustments.
G. Correction Of Errors
• It lists the errors in the past but corrected in the current
year.

CASH FLOW STATEMENT

• A statement that shows the firm's cash receipts and cash payments
during a specified period of time.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

• Recognizes only transactions in which cash changes.

• If the cash from operating activities is greater that the net income, it is
said to be of "high quality".
• If the cash from operating activities is less than the net income, a red
flag is raised as to why the reported net income is not turning into cash.
• Cash flow identifies the coming in and going out of cash. Generating
more cash than using it will give the company the benefit to increase its
dividend, buy back some of its stock, reduce debt, or acquire another
company.
• Some financial decisions like capital budgeting decisions are based on
this.

Accounting Policies and Notes to Financial Statements

➢ These are the guidelines used in the preparation of the financial
statements.
➢ Detailed information is indicated here for clarification, valuation of
inventory, and issuance of capital stocks.

LIMITATIONS OF FINANCIAL STATEMENTS

1. There are variations in the application of accounting principles.
2. Financial statements are intern in nature.
3. Do not reflect changes in the purchasing power of the peso.
4. Do not contain all the significant facts about the business.

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

V. EVALUATION

MULTIPLE CHOICE

1. He or she is the one responsible in making investment, financial, and dividend

policy-making decisions of a firm.
a. Stockholder
b. Finance manager
c. Employee
d. Creditor

2. The finance manager is responsible in maximizing the value of the utility owned
by these people.
a. Creditors
b. board of directors
c. stockholders/investors
d. suppliers

3. It chooses a financing mix that maximizes the value of the projects.

a. Dividend decisions
b. Financing decisions
c. Investment decisions
d. None of the above

4. it is the process of determining how much money should be declared as

dividends to be given to stockholders.
a. Dividend decisions
b. Financing decisions
c. Investment decisions
d. None of the above

5. It is a decision to be made whether to issue bonds or equity to purchase

equipment.
a. Dividend decisions
b. Financing decisions
c. Investment decisions
d. None of the above

6. Which of the following statements does not support the argument that:
“maximizing profit is not the primary objective of the firm”?
a. accounting profits cannot be measured accurately
b. accounting fails to determine the timing benefits
c. accounting does not increase the profit
d. a change in profit is also a change in risk

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

7. One of the tasks of financial managers is to identify projects that when

undertaken _______?
a. Will have benefits that are at least equal to the projects’ costs
b. Will increase the book value of the firm’s common stock
c. Will decrease the book value of the firm’s outstanding debt
d. None of the above

8. What term refers to the possible conflict of interests between shareholders and
management?
a. Agency problem
b. Stakeholders’ problem
c. Double taxation
d. Shareholder’s dilemma

9. Which of the following encourages managers to act in the shareholders’

interests?
a. Conducting regular audits
b. Bonus and higher compensation
c. Threat of hostile takeovers
d. All of the above

10. Social responsibility means except

a. Not polluting the air and water
b. Providing employees with good working conditions
c. Establish social leisure activities
d. Producing quality goods and services

11. A formal statement that shows the result of the operations for a certain period
of time.
a. Balance Sheet
b. Income Statement
c. Statement of Stockholders’ Equity
d. Cash Flow Statement

12. A statement showing the financial position of the company at a particular time.
a. Balance Sheet
b. Income Statement
c. Statement of Stockholders’ Equity
d. Cash Flow Statement

13. A statement that shows the movements in the components of the equity.
a. Balance Sheet
b. Income Statement
c. Statement of Stockholders’ Equity
d. Cash Flow Statement

14. A statement that shows the firm's cash receipts and cash payments during a
specified period of time.
a. Balance Sheet
b. Income Statement

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 Republic of the Philippines
MAILA ROSARIO COLLEGE
Diversion Road, San Gabriel Village, Tuguegarao City, Cagayan Valley
Contact No. (078) 377 – 249

c. Statement of Stockholders’ Equity

d. Cash Flow Statement

15. These are the guidelines used in the preparation of the financial statements.
a. Accounting Policies and Notes to Financial Statements
b. Accounting Policies and Receivables to Financial Statements
c. Accounting Policies and Payables to Financial Statements
d. Accounting Policies and Earnings to Financial Statements

VI. REFERENCE/S

❖ Ferdinand L. Timbang, CPA, MSCF, 2015, Financial Management Part 1, 839

EDSA, South Triangle, Quezon City, C & E Publishing, Inc.
❖ Ma. Flordeliza Anastacio, Ph.D., CPA, Roberto C. Dacanay, CPA, Leonardo E.
Aliling, CPA, 2011, Fundamentals of Financial Management ( with Industry-
Based Perspective), 856 Nicanor Reyes Sr. St., Sampaloc Manila, Rex Book
Store, Inc.

COMPILED BY: CHECKED BY:

ELEINE T. ALVAREZ
BA Instructor BSBA, Coordinator

General Education Coordinator

APPROVED BY:

ROMEO M. PASCUA, Ph.D.

Vice-President of Academic Affairs

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