1 - Intro to Fin Management

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INTRODUCTION TO

FINANCIALMANAGEMENT

Definition of Financial ManagementRoles of Financial Managers

Managements Goals

Legal Forms of Business Organization

Review of Financial Statements


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FINANCIALMANAGEMENT - DEFINITION

combination ofAccountingand Economics

Accounting - financial statements (input)Economics soundness of investment

proposals

deals with investing and financingdecisions andactivities

FINANCIAL MANAGEMENT-

DEFINITIONANDNATURE

science of money management

the management of the finances of a business /

organization in order to achieve financial objectives


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There are three key elements to the process of

financial management:

1) Financial Planning

2) Financial Control

Are assets being used efficiently?

Are the businesses assets secure?

Do management act in the best interest of

shareholders and in accordance with business rules?

3) Financial Decision-making

FINANCIAL MANAGEMENT-

DEFINITIONANDNATURE


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Financial Managers of a firm plays an important role in the

attainment of companys goals, policies and financial success.

Their responsibilities include the following:

1. INVESTMENT DECISIONS

Makes efficient allocations of funds to specific assets

Makes long term capital budget and expenditure

decisions.

2. FINANCING AND CAPITAL STRUCTURE DECISIONS

Determine both the mix of short term and long term

financing and equity/debt financing.

Raises funds on the most favorable terms possible

RESPONSIBILITIES OF FINANCIAL MANAGERS


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3. FINANCIAL ANALYSIS, FORECASTING ANDPLANNING

Monitors the firms financial position

Determine the proper amount of funds to employ in the

firm

4. MANAGEMENT OF FINANCIAL RESOURCES

Manages working capital

Maintains optimal level of investments in each of thecurrent assets

RESPONSIBILITIES OF FINANCIAL MANAGERS


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1. To promote the financial welfare of the

investors through

a. adequate returns on investments through

dividends to stockholders

b. increasing the value of the proprietary

interest of the investors through accumulation

of assets and increases in the market value of

shares.

GOALSANDOBJECTIVESOFTHEFIRM


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. 6)

GOALSANDOBJECTIVESOFTHEFIRM

2. Fulfillment of its civic and social responsibilitiesto improve the quality of life of the people

through

a. better working conditions, hikes in wages

and salary scales, fringe benefits and bonuses.

b. direct participation in civic and community

affairs, providing scholarships, donations

through worthy causes, and financial assistanceduring natural calamities


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LEGALFORMSOFBUSINESS

1) Sole Proprietorship

A business owned by a single individual.

Owner maintains title to the firms assets.

Owner has unlimited liability.

2) Partnership

Similar to a sole proprietorship, exceptthat there are two or more owners.


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2a) General Partnership

All partners have unlimited liability.

2b) Limited Partnership

Consists of one or more general partners,

who have unlimited liability.

One or more limited partners (investors)whose liability is limited to the amount of

their investment in the business.



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2c) Limited Liability Company (LLC)

Cross between a partnership and a

corporation.

Owners have limited liability, but the firm

runs and is taxed like a partnership.



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3) Corporation

A business entity that legally functions

separate and apart from its owners.

Owners liability is limited to the

amount of their investment in the firm.

Owners hold common stock

certificates, and ownership can betransferred by selling the certificates.



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THECORPORATIONAND

FINANCIALMARKETS

Corporation

THECORPORATIONANDFINANCIALMARKETS



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THECORPORATIONAND

FINANCIALMARKETS

Corporation Investors



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THECORPORATIONAND

FINANCIALMARKETS

Government




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THECORPORATIONAND

FINANCIALMARKETS

cash

Government



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THECORPORATIONAND

FINANCIALMARKETS

cash

Government

securities




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THECORPORATIONAND

FINANCIALMARKETS

Government

cash

securities


Secondary

markets



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THECORPORATIONAND

FINANCIALMARKETS

Government

cash

securities


Secondary

markets



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THECORPORATIONAND

FINANCIALMARKETS

Government

cash

securities


Secondary

markets



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THECORPORATIONAND

FINANCIALMARKETS

cashInvestors

Secondary

markets

Government

securities

Cash flow

Corporation



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THECORPORATIONAND

FINANCIALMARKETS

cashInvestors

Secondary

markets

Government

securities

Cash flow

tax

Corporation



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THECORPORATIONAND

FINANCIALMARKETS

cashInvestors

Secondary

markets

Government

securities

Cash flow

reinvest

tax

Corporation



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THECORPORATIONAND

FINANCIALMARKETS

cashInvestors

Secondary

markets

Government

securities

Cash flow

reinvest

tax

Corporation

dividends,

etc.

CORPORATIONS AND THE FINANCIAL MARKET


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Introductory Exercise

For each account listed below, specify in column 1 whether it is a balance

sheet (BS) or an income statement (IS) item. Specify in column 2whether (a) for BS account, it is current asset (CA), current liability (CL),

fixed asset (FA), intangible asset (IA), long term debt (LTD) or

stockholders equity (SE); and (b) for IS account, it is revenue (R), cost of

goods sold (COGS), or expense (E) account.

Financial Statement Account 1 Account 2

1. Marketable securities

2. Current portion of long-term loan

3. Interest expense

4. Income tax expense

5. Accrued taxes

6. Inventories


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Financial Statement Account 1 Account 2

7. Common stock

8. Plant and equipment

9. Sales

10. Interest income

11. Retained earnings

12. Prepaid rent

13. Accrued wages

14. Accounts payable

15. Accounts receivable


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2. An adjusted trial balance is given for Ilocos Company with the accounts

in random sequence:

Ilocos Company

Adjusted Trial BalanceDecember 31, 2010

Debit Credit

Cost of Goods Sold 146,300

Wages Expense 18,400

Wages Payable 1,200

Accounts Payable 32,500

Long-term Notes Payable 50,000

Land 6,000

Accounts Receivable 19,200Cash 31,800

Building and Equipment 145,000

Sales 220,000

Advertising Expense 1,600


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Debit Credit

Prepaid Rent 3,000

Capital Stock 40,000

Rent Expense 1,200

Depreciation ExpenseBuilding and

Equipment

3,000

Merchandise Inventory, December 31 24,300

Estimated Income Tax Payable 7,000

Accumulated DepreciationBuilding andEquipment

18,000

Heat and Light Expense 2,600

Taxes and Insurance Expense 3,400

Income Tax Expense 17,000

Dividends 10,000

Retained Earnings 65,100

Interest Expense 1,000

433,800 433,800

Required: Balance Sheet and Income Statement

1 - Intro to Fin Management

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