Finance

• FINANCE

  the science and art of managing money
• FINANCIAL MANAGEMENT deals with those decisions that are supposed to maximize the value of shareholder’s wealth
• Managers of a corporation are responsible for making the decisions for the company that would lead towards shareholder’s wealth maximization.
• SHAREHOLDERS The shareholders elect the Board of Directors (BOD). Each share held is equal to one voting right. Since the shareholders elect the BOD, their responsibility is to carry out the objectives of the shareholders.
• 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
• Responsibilities of the board of directors:

  • 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.
• PRESIDENT (Chief Executive Officer)

  Among the responsibilities of a president are the following:

  • Approving the information and other disclosures reported in the financial statements.
  • 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.
• VP for MARKETING

  The following are among the responsibilities:

  • Formulating 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.
• VP for PRODUCTION

  The following are among the responsibilities:

  • Ensuring production meets customer demands.
  • Identifying production technology/process that minimizes production cost and make the company cost competitive.
• VP for ADMINISTRATION

  The following are among the responsibilities:

  • Coordinating the functions of administration, finance, and marketing departments.
  • Assisting other departments in hiring employees.
• FUNCTIONS OF FINANCIAL MANAGER

  1. Financing Decisions
  2. Investing Decisions
  3. Operating Decisions
  4. Dividend Policies
• Financing Decisions

  include making decisions as to how to finance long-term investments and working capital-which deals with the day-to-day operations of the company.
• Investing Decisions

  to minimize the probability of failure, long-term investments have supported by a capital budgeting analysis.
• Operating Decisions

  deal with the daily operations of the company especially on how to finance working capital accounts such as accounts receivable and inventories.
• Dividend Policies

  Dividend is a part of profits that are available for distribution, to equity shareholders. The Finance manager must decide whether the firm should distribute all the profits or retain them or distribute a portion and retain the balance.
• Financial System

  links the savers and the users of funds. Savings can come from households, individuals, companies, government agencies, or any other entity whose cash inflows are greater than their cash outflows. The financial system through financial intermediaries provides a mechanism by which these savings can be channeled to users of funds, borrowers, and investors.
• Financial Institution

  are companies in the financial sector that provide a broad range of business and services including banking, insurance, and investment management.
• Commercial Banks

  Individual’s deposit funds at commercial banks, which use the deposited funds to provide commercial loans to firms and personal loans to individuals, and purchase debt securities issued by firms or government agencies.
• Insurance Company

  Individuals purchase insurance (life, property and casualty, and health) protection with insurance premiums. The insurance companies pool these payments and invest the proceeds in various securities until the funds needed to pay off claims by policyholders.
• Mutual Funds

  Mutual funds owned by investment companies that enable small investors to enjoy the benefits of investing in a diversified portfolio of securities purchased on their behalf by professional investment managers.
• Pension Funds

  Financial institutions that receive payments from employees and invest the proceeds on their behalf.
• Financial Instrument

  is a real or a virtual document representing a legal agreement involving some sort of monetary value. These can be debt securities like corporate bonds or equity like shares of stock. When a financial instrument issued, it gives rise to a financial asset on one hand and a financial liability or equity instrument on the other.
• Financial Market

  refers to a marketplace, where creation and trading of financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take place.
• Primary Market

  To raise money, users of funds will go to a primary market to issue new securities (either debt or equity) through a public offering or a private placement.
• Secondary Market

  The sale of previously owned securities takes place in secondary markets.
• Money Market

  Money markets are a venue wherein securities with short-term maturities (1 year or less) are sold.
• Capital Market

  securities with longer-term maturities sold in Capital markets.
• The accounting cycle is a set of steps that are repeated in the same order every period. The culmination of these steps is the preparation of financial statements.
• Step 1: Analyze the Business Transaction In this step, a transaction is analyzed to find out if it affects the company and if it needs to be recorded.
• Step 2: Record a transaction in the Journal (Journalizing) Using the rules of debit and credit, transactions are initially entered in a book called Journal and the entry made is called a Journal Entry.
• Step 3: Post the transaction on a Ledger (Posting) The process of transferring the debits and credits from the journal to the accounts is called Posting.
• Step 4: Prepare an Unadjusted Trial Balance Errors may occur in posting debits and credits from the journal to the ledger.
• Steps in Preparing Trial Balance

  • List the name of the company, the title of the trial balance, and the date of the trial balance is prepared.
  • List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance.
  • Total the Debit and Credit columns of the trial balance.
  • Verify that the total of the Debit column equals the total of the Credit column.
• Step 5: Make Adjustments. Journalize adjusting entries. At the end of accounting period, many of the account balances in the ledger can be recorded in financial statements without change.
• Accruals – these include unpaid salaries for the accounting period, unpaid interest expense, or unpaid utility expense.
• Prepayments – if a company has a prepaid expenses such as prepaid rent or prepaid insurance, then the correct balances for these accounts have to be established at the end of each accounting period to reflect their correct balance.
• Depreciation Expenses – depreciation expenses are recognized at the end of each accounting period through adjusting entries.
• Amortization Expenses – if there are intangible assets such as franchise, the allocation of their costs which is called amortization expense
• Allowance for Uncollectible Accounts – bad debt expense from accounts receivable is also recognized through adjusting entries.
• Step 6: Prepare an Adjusted Trial Balance. An adjusted trial balance is prepared after taking into consideration the effects of adjusting entries.