POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Office of the PUP Graduate School Dean

G/F M.H. delPilar Campus
Sta. Mesa, Manila

GROUP ACTIVITY OUTPUT

Submitted by:

Group 4
Bardaje, Annabelle L.
Matrimonio, Joan D.
Paguirigan, Keneth C.
Santos, Jennybabe B.
Santos, Archieval S.

MBA Financial Management

June 30, 2016

Submitted to:

Dr. Perez

Discuss the following:

1. Enumerate and differentiate the finance functions.

2. Examine and compare the financial organization structure of each company for every
individual member of the group.
3. Enumerate and compare funding sources and needs of private, government agencies
and NGOs.
4. Explain return on investment and enumerate/differentiate the alternative ways to
improve ROI.
5. What are the ways and advantages of using asset effectively and overall impact of
finance?

1.

Enumerate and Differentiate the Finance Functions

Functions of Financial Management

Investment Decision

One of the most important finance functions is to intelligently allocate capital to long
term assets. This activity is also known as capital budgeting. It is important to allocate
capital in those long term assets so as to get maximum yield in future. Following are the
two aspects of investment decision
a) Evaluation of new investment in terms of profitability
b) Comparison of cut off rate against new investment and prevailing investment.

Financial Decision

It is important to make wise decisions about when, where and how should a business
acquire funds. Funds can be acquired through many ways and channels. Broadly
speaking a correct ratio of an equity and debt has to be maintained. This mix of equity
capital and debt is known as a firms capital structure.
A firm tends to benefit most when the market value of a companys share maximizes
this not only is a sign of growth for the firm but also maximizes shareholders wealth. On
the other hand the use of debt affects the risk and return of a shareholder. It is more
risky though it may increase the return on equity funds.

Dividend Decision

Earning profit or a positive return is a common aim of all the businesses. But the key
function a financial manger performs in case of profitability is to decide whether to
distribute all the profits to the shareholder or retain all the profits or distribute part of the
profits to the shareholder and retain the other half in the business.
Its the financial managers responsibility to decide an optimum dividend policy which
maximizes the market value of the firm. Hence an optimum dividend payout ratio is

calculated. It is a common practice to pay regular dividends in case of profitability.

Another way is to issue bonus shares to existing shareholders.

Liquidity Decision

It is very important to maintain a liquidity position of a firm to avoid insolvency. Firms

profitability, liquidity and risk all are associated with the investment in current assets.
Firms profitability, liquidity and risk all are associated with the investment in current
assets. In order to maintain a tradeoff between profitability and liquidity it is important to
invest sufficient funds in current assets. But since current assets do not earn anything
for business therefore a proper calculation must be done before investing in current
assets. Current assets should properly be valued and disposed of from time to time
once they become non profitable. Currents assets must be used in times of liquidity
problems and times of insolvency.

Other Functions:

Estimation of capital requirements: A finance manager has to make estimation with

regards to capital requirements of the company. This will depend upon expected costs
and profits and future programs and policies of a concern. Estimations have to be made
in an adequate manner which increases earning capacity of enterprise.
Determination of capital composition: Once the estimation have been made, the
capital structure have to be decided. This involves short- term and long- term debt
equity analysis. This will depend upon the proportion of equity capital a company is
possessing and additional funds which have to be raised from outside parties.

Choice of sources of funds: For additional funds to be procured, a company has

many choices like- Issue of shares and debentures. Loans to be taken from banks and
financial institutions. Public deposits to be drawn like in form of bonds.

Investment of funds: The finance manager has to decide to allocate funds into
profitable ventures so that there is safety on investment and regular returns is possible.

Disposal of surplus: The net profits decision have to be made by the finance manager.
This can be done in two ways:
Dividend declaration - It includes identifying the rate of dividends and other benefits like
bonus.
Retained profits - The volume has to be decided which will depend upon innovational,
diversification plans of the company.

Management of cash: Finance manager has to make decisions with regards to cash
management. Cash is required for many purposes like payment of wages and salaries,
payment of electricity and water bills, payment to creditors, meeting current liabilities,
maintenance of enough stock, purchase of raw materials, etc.

Financial controls: The finance manager has not only to plan, procure and utilize the
funds but he also has to exercise control over finances. This can be done through many
techniques like ratio analysis, financial forecasting, cost and profit control, etc.

2) Examine and Prepare the Financial Functions of the Group

Financial functions of different organization vary from one another. Their structure
depends on entitys size, nature and type of business as well as its composition and
service demand. It also depends on what customers or type of service they are offering.
We also notice that the bigger the organization the more financial control activities is
necessary thus requiring more departments and personnel to handle the financial
transactions.

These are the Financial Functions that comprise the Financial Organization:
o

Accounts Payable

They process invoices, cut checks and manage relationships with creditors. It is
important, from a vendor management perspective, to ensure that debts are paid ontime and in full to avoid default and strained relationships with third party suppliers.
o

Accounts receivable

Responsible for collecting payments from customers or clients for goods or services
provided. Some clients/customers may be extended a line of credit. The A/R group is
tasked with ensuring that payments are made within the terms outlined in the original
invoice or contract (e.g., net 30 days).

Accounting and Reporting ( Controller Group)

Responsible for maintaining a company's books and ensuring that all business
transactions are properly recorded and managed. The general ledger is the main source
for all of the companys financial reports, so it is important that the Financial Controller
and other staff accountants keep an organized record of all credits and debits (a doubleentry general ledger journal). The controller group also performs tasks such as cost
accounting and fixed assets accounting.
o

Budgeting & Forecasting

Responsible for producing and assessing a company's budget by calculating the

variance between planned and actual costs. They also forecast the revenue and
expenses of certain groups or functions, allowing budget 'owners' to plan and prioritize
spending. The Forecasting Group also produces 'what if' scenarios to prepare the
company for a variety of possibilities.
o

Expense Management

Responsible for monitoring and auditing all employee-initiated expenses. Expenses can
include travel, lodging, entertainment and food. The group is also responsible for
outlining and enforcing policies related to employee expenses, and in many cases,
implementing an automated expense management system to improve efficiency.

Internal Audit and Compliance

Responsible for overseeing a companys financial operations to ensure that they are in
line with internal and external policies and regulations.

Payroll

Responsible for the administration and documentation of all salaries, wages, bonuses
and deductions (payroll tax, social security) received by employees. Though this group
is commonly outsourced or carried out within the HR group, if the business is small,
payroll may be handled directly by the owner or an associate.
o

Tax

Responsible for managing and planning all tax-related expenses. The circumstances
that surround tax management can be complicated, especially when taking into account
the various rules of taxation dealt with by companies that operate globally. The function
also ensures that all tax payments are in compliance with any government requirements
to avoid interest fees or penalties.
o

Treasury Management

Also known as Cash Management, the Treasury Group manages all of the company's
assets to maximize liquidity and reduce risk. The group is responsible for ensuring that
a company has a steady cash flow and for securing any funding that may be needed.
The group may also explore investment options for excess cash.

3.

Enumerate & Compare the funding Source & needs of private, government, NGO
and non-profit corporations.
Private
Loans
Issuance of
shares

Funding
Profit
Source

Government
Loans

NGO
Fund Raising

Tax Revenues Donations

Bilateral and
Multilateral
aids

Non Profit Corporations

Foundation grants
Membership dues and fees
Individual donations and major
gifts
Corporate contributions
Interest from investments
Fees for goods and/or services

4. Explain return on investment and enumerate/differentiate the alternative ways

to improve ROI.

What is Return on Investment (ROI)?

A performance measure used to evaluate the efficiency of an investment or to compare
the efficiency of a number of different investments. ROI measures the amount
of return on an investment relative to the investments cost. To calculate ROI, the benefit
(or return) of an investment is divided by the cost of the investment, and the result is
expressed as a percentage or a ratio.
The return on investment formula:
For a single-period review, divide the return (net profit) by the resources that were
committed (investment).
return on investment = Net income / Investment
where:
Net income = gross profit expenses.
investment = stock + market outstanding + claims.
or
return on investment = (gain from investment cost of investment) / cost of
investment

"Gain from Investment refers to the proceeds obtained from the sale of the investment
of interest.
or
return on investment = (revenue cost of goods sold) / cost of goods sold

Because ROI is measured as a percentage, it can be easily compared with returns from
other investments, allowing one to measure a variety of types of investments against
one another.
A positive result, such as ROI = 24%, means that returns exceed costs and the
investment is considered a net gain.
A negative result, such as ROI = 12%, means that costs outweigh returns and the
investment is viewed as a net loss.
When different investments are comparedand when risks and other factors are equal
the investment with the higher ROI is viewed as the better investment.

Alternative ways to improve ROI:

1.

Increase sales Increase both margin & turnover.

One way to increase your return on investments is to generate more sales and
revenues or raise your prices. If you can increase sales and revenues without
increasing your costs, or only increase your costs enough to still provide a net gain in
profits, youve improved your return. If you can raise your prices without decreasing
your sales enough to erode profits, youve improved your return. Using your calculation
of your current return, look at ways to improve your sales and revenues in ways that
provide you with a greater profit than your current business practices.

2.

Reduce expenses Increase the margin while holding the turnover constant.

Another way to improve your return is to reduce your expenses. You wont have to
increase your sales or raise your prices to improve the return on your investment this
way. Divide your expenses into overhead and production costs to help you better find
expense-reduction opportunities. Overhead costs are non-production expenses such as
rent, insurance and phones. Production costs are the expenses you incur to make one
unit of your product, such as materials and labor.

3.

Reduce operating assets Increase turnover by reducing investment in assets

while holding net profit and sales constant.

Illustrative Problem:
Net operating income P 10,000.00
Sales 100,000.00
Average operating assets 50,000.00
ROI = Margin x Turnover
Or
ROI = (Net Operating Income / Sales) x (Sales /Average Operating Assets)
ROI = (10,000 / 100,000) x (100,000 /50,000)
= 20%

Approach 1 Increase sales

ROI = (12,000 / 110,000) x (110,000 /50,000)
= 24%

Approach 2 Reduce expenses

ROI = (11,000 / 100,000) x (100,000 /50,000)
= 22%
1.
Approach 3 Reduce operating assets
ROI = (10,000 / 100,000) x (100,000 /40,000)
= 25%

5. What are the ways and advantages of using asset effectively and overall impact
of finance?

An asset is a resource with economic value that an individual, corporation or country

owns or controls with the expectation that it will provide future benefit.
Effective use of assets are very crucial in one company as it is not just creating an
impact in financial realm but also creates impact on the productivity of an employee.
Some example of assets are Inventory, Accounts Receivables, Finished goods and
Equipments.
For account receivables, the company must be able to manage the return or the
collections of the existing company loans and . The company must be able to work on
this first as the capital and the cash flows will also depend on this.
For Inventories, the company must be able to supply just enough goods or products
depending on the type, size, volume, expiration and availability in the market.
For Finished goods, it is important to always review the previous sales or output of the
company as the trend will always depend o this.
In addition to, the quality of the equipments are also important as the productivity or
output also rely on this. The life or duration of these equipments must also be monitored
and checked in a regular basis. If the equipment is no longer usable, the company must
no longer used that equipment as it can only impact the output of the business.