BUSINESS

FINANCE
LESSON 1 : Introduction to Financial
Management
 Organizational Chart
and the Roles of the VP
for Finance
 The Corporate Organizational
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.
 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.
The responsibilities of a Board
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
 The responsibilities of a President (CEO)
1. Overseeing the operations of
2. Performing all areas of
a company and ensuring that
management: planning,
the strategies as approved by
organizing, staffing, directing
the board are implemented as
and controlling.
planned.

3. Representing the 4. Carries out the

company in professional, decision making for all
social, and civic activities. functions
The responsibilities of a VP
for Marketing
1. Formulating 2. Directing and
marketing strategies coordinating
and plans. company sales.
4. Analyzing and
3. Performing evaluating the
market and effectiveness and cost of
competitor analysis. marketing methods
applied.
 3.
2.
The responsibilitiesComingof a VP for
Identifying
Production
productio
up with a
4.
1. n productio
n plan Identifyi
Ensuring technolog
that ng
producti y/process
maximize adequat
on that
s the e and
meets minimizes
productio utilization cheap
custome
n cost and of the raw
r
make the company’ material
demand
company s suppliers
s. cost
productio .
 The responsibilities
3. of a VP for
5.
Administration
Providin 4.
Identifyi
g Determi
1. ng
assistan ning the
Coordinati means,
2. ce in location
ng the processe
functions Assisting payroll and the
s, or
of other preparat maximu
systems
administra departm ion, m
that will
tion, ents in payment amount
finance, minimize
hiring of of office
and the
employe vendors, space
marketing operatin
es. and needed
departme g costs
nts. collectio by the
of the
n of company
company
The responsibilities of a VP for
Finance
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.
The four functions of a VP for
finance (CFO) are as follows:
• Financing Decision
• Investing Decisions
• Operating Decisions
• Dividend Policies
 Financing Decision
• Financing Decisions include making decisions as to how finance
long-term investments and working capital which deals with the
day-to-day operations of the company.
• The VP for Finance is also responsible for determining the
appropriate capital structure of the company. That is, how much
of the total assets should be financed by debt and equity.
• This responsibility is crucial because if the company is aggressively
financed, that is, it is heavily by debt, the company becomes
vulnerable to adverse economic conditions which may result in
higher volatility in earnings.
• The company can get bankrupt because of too much debt.
 Investing Decisions
• To minimize the probability of failure, long-term investments have to be
supported by a capital budgeting analysis which is among the
responsibilities of a finance manager.
• Capital budgeting analysis is a technique used to determine the financial
viability of a long-term investment.
• This requires forecasting the cost of investment and the streams of cash
flows expected to be generated from the invested.
• The investment can only be considered if it satisfies certain financial
parameters that are acceptable to the top management. This function of
a finance manager is crucial. Many companies which suffered financial
distress went through an aggressive expansion heavily financed by debt.
 Operating Decisions
• Operating decisions deals 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 decision regarding the financing of these working capital accounts
depends on the appetite of top management for risk. If the company
is more aggressive, then these accounts receivable and inventories
can be substantially financed by short-term sources.
• Basically, short-term sources of funds are cheaper. Interest on short-
term loans is generally lower than the interest on long-term loans.
Hence, using short-term loans can boost the profitability of a
company. A more conservative management will opt to finance
working capital accounts mostly through long-term sources.
 Dividend Policies
• Some investors buy stocks because of the dividends they expect to
receive from the company. Non-declaration of dividends may
disappoint these investors.
• PLDT and GLOBE are two of the Philippine-listed companies which
have generally distribute cash dividends for the last five years. Two
conditions must exist before a company can declare cash dividends.
First, the company must have enough retained earnings to support
cash dividend declaration. When cash dividends are declared, the
retained earnings of a company go down to the extent of such
declaration. Second, the company must have cash.
 There are several factors considered in declaring cash
dividends. Listed below are among these considerations:

• 1. Availability of investment – This is

especially true for small and medium
enterprises (SMEs) which access to long-
term sources of funds is limited. These
SMEs may rely heavily on internally
generated funds to finance expansion.
Hence, the decision to declare cash
dividends can be substantially influenced by
the availability of investment opportunities.
• 2. Access to long-term sources of funds –
Publicly listed companies like PLDT, Globe or
Petron have better access to long-term
sources of funds. These companies can
afford to declare cash dividends even if they
are faced with huge amounts of investments,
for as long as their retained earnings can
support such declarations. The reasons are
these companies are big, publicly listed and
have much better access to long-term
sources of funds.
•3. Capital Structure – The
capital structure of a company
can depends largely on the
nature of its business. As
previously started, companies
which are capital intensive
have to be more conservatively
financed.