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Business-Finance Module 1
Accounting for Business Combination (University of Antique)
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BUSINESS FINANCE
Quarter 1 – Module 1:
Major Roles in Financial Management and
Individuals Involved
Business Finance – Grade 12
Quarter 1 – Lesson 1:
First Edition, 2020
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Published by the Department of Education, Schools Division of Antique
Business Finance
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Quarter 1 – Lesson 1: Major Roles in Financial Management and Individuals Involved
First Edition, 2020
Republic Act 8293, section 176 states that: No copyright shall subsist in any work of
the Government of the Philippines. However, prior approval of the government agency or office
wherein the work is created shall be necessary for exploitation of such work for profit. Such
agency or office may, among other things, impose as a condition the payment of royalties.
Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names,
trademarks, etc.) included in this module are owned by their respective copyright holders.
Every effort has been exerted to locate and seek permission to use these materials from their
respective copyright owners. The publisher and authors do not represent nor claim ownership
over them.
Published by the Department of Education, Schools Division of Antique
Development Team of the Module
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Necca T. Palcat-Berin
Content Editor:
Kristin M. Cepeda, Danilo J. Salmorin
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Business Finance
Quarter 1 – Module 1:
Major Roles in Financial
Management and Individuals
Involved
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Aiming at the Target
In this lesson, you will learn how to:
• explain the major roles of financial management and the different
individuals involved; and (ABM_BF12-IIIa-1)
• explain the flow of funds within an organization – through and from the
enterprise—and the role of the financial manager. (ABM_BF12-IIIa-5)
Trying the Challenge
TRUE or FALSE.
Direction: On your answer sheet, write TRUE if the statement is correct and
FALSE if otherwise.
_______1. A Chief Executive Officer (CEO) or President oversees the company’s
operation and act as a representative of a company in various
activities.
_______ 2. In the attempt of maximizing the wealth of the business firm, a
financial manager’s decisions must include planning, acquiring, and
utilizing of funds involving its risk and return impact.
_______ 3. A VP for Marketing has a function that is associated with the finance
activity of the firm.
_______ 4. A Working Capital refers to a firm’s long-term assets and its long-term
liabilities, that deals with the day to day operations of the company.
_______ 5. Managing the firm’s working capital to ensure a sufficient funds for its
continuous operation and to avoid costly disruptions is known as an
Investment Decision of a Finance Manager.
_______ 6. The Dividend Policy as one of the financial decisions, deals with
identifying the optimal dividend distribution to be issued to owners,
the rate of payments made, and the amount retained for the firm.
_______ 7. Among the responsibility of a VP for Production is to ensure that
customer’s demands and production meet.
_______ 8. A VP for Finance deals with the selling, promotion, and distribution of
a product.
_______ 9. VP for Finance or the Financial Manager has the responsibility to
determine an appropriate mix of debt and equity of an organization.
_______ 10. A financial decision that deals with level of inventories, cash and
securities to be maintained on hand; the credit policy to be offered to
customers, and mode of payment when purchasing raw materials or
merchandise is an operating decision of a finance manager.
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Major Roles in Financial
Management and Individuals
Involved
Lesson
1
Connecting to the Past
I. Copy the table on your answer sheet. Write the three levels of
management, and give an example/s for each level.
Level of Management
Example(s)
1.
2.
3.
Gearing Up to Start
Finance is an act or process of raising or providing funds. (www.merriamwebster.com>finance)
Finance is the science and art of managing money. (Gitman & Zutter, 2012)
Hitting the Target
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An organizational structure shows the roles and functions of the
employees in a company. Job descriptions and functions may vary from
different companies, depending on its size, and form of organization, but basic
and important features of functions are common in nature. For example, in
a small business, the president or head of the company can also directly
perform the responsibility of the marketing, finance and production
managers, while in a big or very large companies, there are Chief Financial
Officers (CFO) or VP for Finance that assumes the responsibility that
contributes to the good financial decisions and directly reports to the top
management; and other VP’s for specific departments.
Each line is working for the interest of the person above them, based
on the diagram, the managers or VP’s are working for the interest of the board
of directors, and the decisions of the board of directors are for the interest of
the shareholders, therefore, every individuals goal in an organization must be
for the wealth maximization of the shareholders’.
Positions and their Roles:
Shareholders. Owners of shares in a company. Each share held is equal to
one voting right. The shareholders elect the Board of Directors (BOD).
Board of Directors. The highest policy making body in a corporation. An
elected group of individuals that represent shareholders. Manages the
company.
Responsibilities of the Board of Directors (BOD):
• 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 (Cayanan, 2015).
President/Chief Executive Officer (CEO). Oversees the overall operations
and resources of the company. Ensures that planned strategies as approved
by the board were implemented and executed.
Responsibilities of the President or CEO:
• Overseeing the operations of a company and ensuring that the
strategies as approved by the board are implemented as planned.
• Performing all areas of management: planning, organizing, staffing,
directing and controlling.
• Representing the company in professional, social, and civic activities.
• Carries out the decision making for all functions
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VP for Marketing. Directing and coordinating company’s sales, promotion,
and distribution of products.
Responsibilities of the VP for Marketing:
• Formulates marketing strategies and plans.
• Directing and coordinating company sales.
• Performing market and competitor analysis.
• Analyzing and evaluating the effectiveness and cost of marketing
methods applied.
• Conducting or directing reserach that will allow the company identify
new marketing opportunities.
• Promoting good relationships with customers and distributors.
(Cayanan, 2015)
VP for Production. Ensures production meets customers demand.
Maximizing company’s optimal operating performance. Determines an
effective production plan with cost efficient and quality-based output process
that maximizes the use of company’s production facilities.
Responsibilities of the 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, 2015)
VP for Administration. Oversees the administrative task and functions and
develops strategies to enhance staff’s performance. Organize and manage the
functions of different departments in the firm.
Responsibilities of the VP for Administration:
• Coordinating the functions of administration, finance, and marketing
departments.
• Assisting other departments in hiring employees.
• Providing assistance in payroll preparation, payment of vendors, and
collection of receivables.
• 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. (Cayanan, 2015)
Financial Management
Deals with decisions that are supposed to maximize the value of
shareholders’ wealth. (Cayanan)
• These decisions will ultimately affect the markets perception of the
company and influence the share price.
• The goal of financial management is to maximize the value of shares of
stocks.
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•
Managers of a corporation are responsible for making the decisions for
the company that would lead towards shareholders’ wealth
maximization.
Financial Management refers to strategic planning, acquiring, directing, and
controlling of financial undertakings in an organization in a way that it
achieves its goal.
Maximizing the value of the owner(s) share, as a finance manager, one
must need to learn to identify a sound investment, good planning and
allocation of owner(s) resources in the profits making venture that will
favorably increase the value of the owner(s) share.
Finance is applicable wherever there is cash flow. Cash flow plays a
vital role in determining the firm’s financial health; its ability to produce
sufficient cash to pay its obligations when due.
Finance plays a vital role in a business firm that cuts across functional
limitations. There are departments of an organization that are needed for the
company’s survival, like sales & marketing and manufacturing departments
for example, these departments are crucial for the firm’s survival, but funds
are needed in order for them to function effectively and operate properly. Since
finance deals with the management of money, a finance manager must
communicate and interact with other managers to determine their respective
goals and ways to achieve them.
Role of Finance Manager
Finance Manager’s responsibility includes the allocation of funds to its
current and fixed assets and to strategize an ideal mixture of debt and equity
financing that is suited for the firm as well as determining the appropriate
risk-return trade off in order to achieve its goal of maximizing its wealth for
its shareholders.
Functions of Finance Manager
Four (4) Functions of a Financial Manager
1. Financing
2. Investing
3. Operating
4. Dividend Policies
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.).
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The role of the VP for Finance or 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.
Accounting Equation is Asset = Liabilities + Owner’s Equity. To be able
to acquire assets, there must be a source of funds. If such asset was bought
through cash from the firm’s shareholders own money, its then finance by
equity. On the other hand, if the money used to buy an asset came from
borrowings, it is then finance by debt. To illustrate, refer to the figure below.
From this figure it shows that the capital structure is 60% debt and
40% equity.
There is no ideal mixture of debt and equity across corporations. 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.
Investment Decisions
Investing is where to put your excess cash to make it more profitable.
Expanding that definition, let us include cash held taken from funds as a
result of financing decisions. Investments may either be short term or long
term.
A financial decision that deals with the management of firm’s assets. To
determine the real asset of the business and best asset mix or the amount of
money invested in current and fixed assets. The assets that generates cash
flows that are needed to meet the firm’s operating expenses, interest paid to
creditors, taxes, and dividends to shareholders. A financial manager must
also ensure that investments in current assets are sufficient to be able to meet
or pay its obligations when due.
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Operating Decisions
Deal with the day-to-day operations of the company. The VP for Finance
responsibility will include as to determining how to finance working capital
accounts such as short-term assets.
Working Capital is the main concern of operating decisions. Managing
the working capital of the firm is a day-to-day activity that ensures sufficient
resources to continue its operation and to avoid costly disruptions. Working
capital refers to short-term assets and labilities of a firm.
In managing the working capital, the following must be taken into
consideration:
1. How much cash, and inventory must be retained on hand?
2. What will be the company’s credit policy and terms when selling?
3. How and where would a firm borrow to generate its short-term
financing?
4. In purchasing of goods, will the firm pay in cash for its raw materials
or goods, or should it borrow in short-term, or purchase on credit?
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?
Short-term sources include short-term bank loans and suppliers’ credit
(amount owed to suppliers for products/services provided) are funds that are
payable in at most 12 months. Short-term loans generally have lower interest
rates compared to long-term loans, heading to lower financing cost.
Since long-term sources matures in longer periods, creditors/lenders
anticipate more risk and therefore requires higher interest rate as compared
to short term sources. Given the time to mature, long term sources have
longer span of time compared to short term sources, therefore the company
has more time to gather cash to pay its obligations when due.
Dividend Policy
Shareholders return of investment based on their shareholdings were
paid by companies through cash dividends. Wherein, investors buy stocks of
certain companies with the expectation of receiving dividends at a certain
time. Companies who fail to give dividends may disappoint these investors.
Therefore, a finance manager’s responsibility will include the determination
of when the company should declare cash dividends, the frequency of
payment of its dividends, and the amount to be retained by the by the
company in the form of reserves for financing its future growth or expansion.
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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.
•
•
•
Factors that will affect the management’s decision in paying dividends:
Availability of financially viable long-term investment
Access to long term sources of funds
Management’s Target Capital structure
Remember that investing is one of the finance manager’s function, and
investing is where to put its excess cash to make it more profitable, may it be
short-term or long-term investment. Some small companies that are
expanding may have limited access to long term financing leading to these
small companies to reinvest their earnings rather than paying out as
dividends. While companies that have access to long term sources of funds
may be able to declare dividends even though they have 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.
This chapter is an adaptation of Teaching Guide for Senior High School, Business Finance by CHED K12, 2016 and is used under a CC-BY-NC-SA 4.0 International license.
Strengthening the Grasp
Analyze and answer the questions briefly on your answer sheet.
1. What is the financial manager’s role in achieving the firm’s goal?
2. Why is a sound financing decision of a Finance manager important in the
maximization of the wealth of the owners?
Wrapping Up to Go
▪
Maximizing the value of the owner(s) share, as a finance manager, one
must need to learn to identify a sound investment, good planning and
allocation of owner(s) resources in the profits making venture that will
favorably increase the value of the owner(s) share.
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▪
▪
▪
▪
▪
▪
▪
▪
A financial manager is part of a top management team whose ultimate goal
is to maximize the shareholders wealth.
A VP for Finance is one of the top officers of the company that reports
directly to the president. Involves in making financial decisions. Oversees
capital structure of the company and determine the best mix of financing
alternatives. Has the role to acquire necessary funds and ensure its used
effectively.
The president alone cannot manage the company on his own, especially
when the firm has become too big to handle. To assist him are the vice
presidents of different functional areas: finance, marketing, production,
and administration.
Finance plays a vital role in a business firm that cuts across functional
limitations. There are departments of an organization that are needed for
the company’s survival. Since finance deals with the management of
money, a finance manager must communicate and interact with other
managers to determine their respective goals and ways to achieve them.
The 4 functions of finance manager are financing, investing, operating
and making decisions on dividend policies that aims to achieve the goal
of financial management; to maximize the owner’s wealth by maximizing
the wealth of the firm.
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.
Checking the Target
Choose the letter of the correct answer. Write your answer on your answer sheet.
1. Decision making process that involves planning, acquiring, and utilizing of
funds that considers the risk-return trade-offs, to maximize the owners’ or
shareholder’s wealth.
A. Finance
C. Financial Management
B. Marketing
D. Manufacturing
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2. Has the role to determine the total fund requirements of the firms; assets to
be acquired and best patterns to finance the assets.
A. President/ CEO
C. VP for Operations
B. Board of Directors
D. VP for Finance
3. Formulate strategies and plans that deals with selling, promotion and
distribution of the goods or product.
A. VP for Finance
C. VP for Production
B. VP for Marketing
D. VP for Administration
4. Refers to short-term assets such as cash, accounts receivables, inventories,
and short-term liabilities such as accounts payable and short-term loans, that
involves various activities related to the firm’s inflow and outflow of cash.
A. Working Capital
C. Finance
B. Cash flow
D. Investment
5. A finance decision that deals with resolving issues when financing purchases
of goods such as determining a purchasing scheme of whether to pay in cash,
purchase on credit or borrow in short-term.
A. Operating Decisions
C. Investment Decisions
B. Financing Decisions
D. Dividend Policies
6. Deals with identifying the optimal dividend distribution to be issued to
owners, the rate of payments made, and profit retained for the firm.
A. Operating Decisions
C. Investment Decisions
B. Financing Decisions
D. Dividend Policies
7. Responsible for formulating strategies that will maximize the utilization of
company’s productions facilities.
A. VP for Finance
C. VP for Production
B. VP for Marketing
D. VP for Administration
8. Responsible for making decisions on how to fund long-term investments and
working capital that deals with its day-to-day operation.
A. VP for Finance
C. VP for Production
B. VP for Marketing
D. VP for Administration
9. A larger discipline that deals with ways of raising and distributing capital, use
of money, and considers and evaluates the impact of risk involved.
A. Financial Management
C. Financial Manager
B. Finance
D. Investment
10. Determination of the total amount of funds that a firm can commit for
investment.
A. Operating Decisions
C. Investment Decisions
B. Financing Decisions
D. Dividend Policies
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Teaching Guide for Senior High School, Business Finance. CHED K-12, 2016
www.merriam-webster.com>finance
References
Checking the Target
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
I. 1. Lower Level Mgt
(Foreman etc.)
2. Middle Level Mgt
(General Manager, Plant
Manager etc.)
3. Top Level Mgt
(CEO, COO, CFO etc.)
Maximizing the current value of
ownership in a business firm is
the goal of a financial
management. Achieving the said
goal requires decisions involving
planning, acquiring, and
utilizing of funds involving its
set of risk-return trade-offs.
Appropriated risk-return tradeoff must be determined to
maximize the market value of
the firm for its shareholders.
The risk-return decision will
influence not only the
operational side of the business
but also the financing mix.
Finance manager has the
responsibility to contribute to
good decision making on issues
that cut across the functional
areas of the business.
Connecting to the Past
Strengthening the Grasp
C
D
B
A
A
D
C
A
B
C
Trying the Challenge
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
True
True
False
False
False
True
True
False
False
True
Finding the Score
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For inquiries or feedback, please write or call:
Department of Education – Schools Division of Antique
San Jose de Buenavista, Antique
Telefax: (632) 8634-1072; 8634-1054; 8631-4985
Email Address: blr.lrqad@deped.gov.ph * blr.lrpd@deped.gov.ph
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