Chapter 1 – Introduction to Financial Management
FINANCE – is the study of how the players in a financial system acquire, spend, manage, and
make other sound financial decisions concerning money and other financial resources.
Money has 3 major Functions.
1. Medium of exchange
2. As a store of value
3. As a standard of value
3 Important Concepts in making Sound Financial Decisions:
1. More value is preferred than less.
2. The sooner the cash is received, the more valuable it is.
3. Less-risky assets are more valuable than or preferred over riskier assets.
Reasons to Study Finance
1. To be able to manage money or financial resources.
2. To be able to make sound economic decisions.
3. To be able to arrive at sound personal and business investment decisions.
4. To be able to understand the career path available to finance professionals.
Careers in Finance
• Commerce & Industry - Financial Analyst, Cash Management Analyst, Capital
Expenditures Analyst, Credit Analyst, Loan Analyst, Bank Teller, Insurance Agent, Real
Estate Agent, Stockbroker, Security Analyst, etc.
• Government – Administrative Clerk, Examiner, etc.
• Academe – Lecturer, Research Assistant, etc
FINANCIAL MANAGER – the major task is to ensure that the financial decisions are made with
due regard to prudent use of financial resources in the hope of increasing stakeholder value.
Roles of Finance Manager
1. Develop financial plans and budgets to ensure the company has the resources it needs
to achieve its goals.
2. Identify and manage risks that could impact the company’s financial performance.
3. Analyze financial data to identify trends and make recommendations on how to improve
the company’s financial performance.
4. Make investment decisions to help the company grow and achieve its goals.
5. Ensure the company has sufficient cash flow to meet its obligations and fund its
operations.
6. Prepare financial reports to keep stakeholders informed about the company’s financial
performance.
The Financial Environment – is characterized by its three interacting areas:
1. Financial Institutions & Markets
Financial Institution - is an organization that handles financial transactions for
individuals, groups, and other organizations- profit, non-profit, private, or
government-owned.
2. Investments
3. Financial Management
Various Financial Institutions or Intermediaries
Banks – supervised and regulated by the Bangko Sentral ng Pilipinas (BSP)
- Universal & Commercial Banks – represent the largest single group, resource wise, of
financial institutions in the Philippines.
- Thrift Banks – represent non-commercial banks.
- Savings Banks – accept the savings of individuals and lend pooled savings to individuals
primarily in the form of mortgage loans.
- Rural & Cooperative Banks – represent the most popular type of banks in the rural
communities.
Insurance Companies – supervised and regulated by the Insurance Commission, these are
companies that offer insurance policies either by selling directly to an individual or through
another source.
Lending Institutions – similar to non-banks with quasi-banking functions, they make loans
available to individuals and businesses.
Financial Institution
- is an organization that handles financial transactions for individuals, groups, and other
organizations- profit, non-profit, private, or government-owned.
