BUSINESS FINANCE

OBJECTIVES: Ath\ the end of the lesson; you should

able to:
 Define Finance
 Describe who are responsible for financial management within an
organization
 Describe the primary activities of the financial manager
 Describe how the financial manager helps in achieving the goal of the
organization
 Describe the role of financial intitutions and markets
 IMPORTANCE TO YOU
Do you believe that finance is everyday?
Do you experience short of cash?
How much is your extra money?
 You will become financial literate in all
aspect of life. This subject will answers all the
previous question I have given to you
 What is finance and financial management?

FINANCE- is always of great importance, be it in a business or

in one’s everyday life.
FINANCE as the science and art of managing money.

It is important to manage risks in business, it is equally

important to manage risk in life as well.
FINANCIAL MANAGEMENT- deals with that decisions that are
supposed to maximize the value of shareholder’s wealth. These
decisions will ultimately affect the market’s perception of the
company and influence the share price.
GOAL- maximize the value of shares of stocks.
MANAGERS- are responsible for making the decisions for the
company that would lead towards shareholdre’s wealth maximization.
 ROLES OF EACH POSITION
SHAREHOLDERS- Elect the Board of Directors (BOD).
Each share held is equal to one voting right.
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.
 RESPONSIBILITIES OF BOARD OF
DIRECTORS
 Setting policies on investments, capital structure and dividend policies.
 Approving company’s strategies, goals and budgets.
 Appointing and removing members of the top management including the
president.
 Determining top management’s compensation.
 Approving the information and other disclosures reported in the financial
statements.
 PRESIDENT RESPONSIBILITIES
 Approving the information and other disclosures reported in the financial
statements. Performing all areas of management: planning, organizing,
staffing, directing and controlling.
VP FOR MARKETING-
a. Formulating marketing strategies and plans. Directing and coordinating
company sales.
b. Performing market and competitor analysis.
c. Analyzing and evaluating the effectiveness and cost of marketing methods
applied.
d. Conducting or directing research that will allow the company identity new
marketing opportunities which are already offered in the market.
e. Promoting good relationships with costumers and distributors.
 VP for PRODUCTION RESPONSIBILITIES
a. Ensuring production meets customer demands.
b.Identifying production technology/ process that
minimizes production cost and make the company cost
competitive.
c. Coming up with a production plan that maximizes the
utilization of the company’s production facilities.
d.Identifying adequate and cheap raw material suppliers.
 VP FOR ADMINISTRATION
RESPONSIBILITIES
a. Coordinating the functions of administration, finance, marketing departments.
b. Assisting other departments in hiring employees.
c. Providing assistance in payroll preparation, payment of vendors, and collection
of receivables.
d. Determining the location and the maximum amount of office space needed by
the company. Identifying means, processes, or systems that will minimize the
operating costs of the company.
The role of the VP for Finance/ Financial Manager is the determine the
appropriate capital structure of the company.
Capital Structure- refers to how much of
your total assets financed by debt and how
much is financed by equity.
 FUNCTIONS OF FINANCIAL
MANAGERS
1. Financing Decisions- include making decisions as to how to finance long-term
investments and working capital- which deals with the day to day operations of
the company.
2. Investing Decisions- To minimize the probability of failure, long-term
investments have supported by a capital budgeting analysis.
3. Operating Decisions- deal with the daily operations of the company especially on
how to finance working capital accounts such as accounts receivable and
inventories.
4. Dividend Policies- Dividend is a part of profits that are available for distribution,
to equity shareholders. The finance manager must decide whether the firm should
distribute all the profits or retain them or distribute a portion and retain the
balance.
 Difference between financial instruments,
financial institutions and financial markets
1. Financial Institutions are companies in the financial sector that
provide a broad range of business and services including banking
insurance and investment management.
Examples of financial institutions
2. Commercial Banks
3. Insurance Companies
4. Mutual Funds
5. Pension Funds
Financial Instruments is areal or virtual document representing a legal
agreement involving some sort of monetary value. These can be debt securities
like corporate bonds or equity like shares of stock. When a financial instrument
issued, it gives rise to a financial asset on one hand and a financial liabilityor
equity instrument on the other.
a. Financial Asset is any asset that is:
 Cash
 An equity instrument of another entity
 A contract right to receive cash or another financial asset from another entity.
 A contractual right to exchange instruments with another entity under
conditions that are potentially unfavorable.