I

. Let's Know

Finance is part of everybody's everyday life. May you be a student, a worker, or a retiree. Your day to day activities allows you to make your own financial decisions

Finance is defined by the American Heritage Desk Dictionary, as the management of money, banking, investments, and credit. It directly suggests that finance is directly related to money or to a business activity that primarily deals with money transactions.

Finance can also be defined as both Science and art of managing money. (Gitman & Zutter, 2012). It is both Science and Art of the correct application of the economic and accounting concepts and principles that define the system, structure, and process of management, allocation, and utilization of financial resources, investment, and expenditures.

Finance is said to be a Science because Finance uses factual information in financial activities. And it is said to be an Art because finance will continue to evolve in the future due to new developments and trends in business practices.

Finance is concerned with decisions about:

➤ BUDGETING is a process of preparing a financial budget. In your case as a student, how much of your allowance do you spend? Or do you save money? The amount of money you try to spend in a day and the amount of money you wanted to save is a form of budgeting.

SOURCE OF FUNDS in finance can be short term or long term funds. Single proprietors and rich members of the family and friends can be tapped in the event that you will open a business and needs funds. In your case as a student the most common source of funds will be your parents, borrowing from a friend, given by your aunts/uncle or grandparents, pawnshops, bank, or even 5/6.

AREAS OF FINANCE

There are two classifications of Finance.

Private Finance is the management of financial resources of private individuals, non- governmental organizations and private organizations.

Public Finance, on the other hand, is an allocation of government income generated from their taxation or borrowings.

Private finance is subdivided into two; these are Personal and Business Finance. (Aduana, Business Finance)

Personal Finance is all about the management of personal resources of a person/ individual. (Aduana, Business Finance)

Business Finance is into taking care of and overseeing of money related assets of a business organization. It has three major divisions: the financial management, capital management, and financial investment.

Now let us discuss each division of Business Finance.

Financial Management focuses on capital budgeting decisions or investment decisions.

The main goal is to maximize the value of shareholders' wealth. (Cayanan)

• Capital Market is an area of finance that studies the different financial institutions and its functions that can provide assistance to private and public borrowers of funds.

• Financial Investment focuses on business decisions about the value and price of stocks and bonds.


From the illustration (Business Finance, SHS PNU) let us discuss one by one the role they play in a corporate organization:

• Shareholders Each shareholder has one voting right and they elect the Board of Directors (BOD).

• Board of Directors Their responsibility is to carry out the objective of the shareholders. Their responsibility includes:

• Setting policies on investment, capital structure, and dividend policies.

Appointing and removing members of the top management

• Approving company's goals, budget, and strategies.

• President (Chief Executive Officer) The President or CEO's roles vary from one company to another. Some of the basic responsibilities of the CEO include the following; oversees the operation of the company thus ensuring that strategies approved by the board are implemented; represents the company in all activities such as professional, social and civic activities and the CEO ensures all the areas of management: planning, organizing, staffing and controlling.

VP for Marketing The VP for marketing's responsibilities includes formulating marketing strategies of the organization, directing company sales, analyzing market and competitor, evaluating marketing methods used, and heading the marketing research.

• VP for Production The VP for production ensures that production meets customer demands, comes up with a production plan, identifies production processes that will help the company, and identifies affordable suppliers.

VP for Administration The role of the VP for Admin is to coordinate the functions of the administration, finance, and marketing departments. He/She assist other departments in hiring employees; assist in payroll preparation, payment vendors, and collection receivables. The VP for admin also identifies the means, processes, or systems that can help the company maximize its operating costs.

VP for Finance The role of the VP for finance is to manage the finances of the company or organization. He or she is the financial traffic officer of the organization. He or She is engaged in making decisions for the business in operating, investing, and financing. The VP for finance determines the appropriate capital structure of the company.

A Finance Officer is engaged in making decisions for the company or the business to attain its objective at the optimum level. The decision making of a finance officer is classified into the following:

1. Operating Decisions this includes credit and collection, checking on the level of inventory. budgeting, payment, and control of operating expenditure and daily operating decisions.

2. Investing Decisions deals with non-current asset acquisition, investment portfolio, pricing decision of stocks and bonds, and cash flow analysis in budgeting.

3. Financing Decision- deals with equity and debt financing, cost of capital and borrowing. interest rate, and short-term and long-term borrowing.

Let us now explore the qualifications of a finance officer or the VP for Finance. A finance officer must have the following qualifications:

1. He/She must have sound knowledge of accounting and economic concepts and principles.

2. Understand the operation, statistic, and marketing research profoundly.

3. Possess good communication in both oral and written forms.

4. With impressive relationships with banks and other financial institutions

5. Good relationship within the business and other functional areas of the company.

6. Obtain technical experience in finance and can provide professional judgement.

7. Ethically and morally upright and socially responsible.

The Role of Financial Management

1. Financial Decision and controls Financial managers and management play a vital role in making financial decisions over the organization or company. They use techniques like financial forecasting, profit, and loss analysis, etc. in analyzing the company's financial status.

2. Financial Planning The Finance officer is responsible for the planning of financial activities or the organization. They will use available data to understand the needs and priorities of the company as well as the overall situation. It also the role of the finance officer to plan and budget for the company financially.

3. Capital Management-It is the role of the financial management to estimate and allocate capital requirement of the company from time to time, makes the choice of source of funding in case of capital needs.

4. Allocation and Utilization of financial resources-Financial managers ensure that all financial resources of the company are used and invested effectively to make sure that the company is profitable, sustainable, and can operate in the long-run.

5. Cash Flow Management-It is very important for a company to have sufficient working capital and cash flow to meet its operational expenses and emergencies. It is now the role of financial management to keep track of accounts payable and receivable to make sure that there is sufficient cash flow available at all times.

6. Disposal of Surplus - Financial managers decide on how surplus or profits of the company will

be utilized. It is under their control of how dividends will be distributed and how much as well

as the proportion of profits that must be retained into the company.

7. Financial Reporting It is the financial management that maintains all the financial reports

related to the finance of the company. It uses a database for planning and forecasting financial

activities for the company

8. Risk Management The finance officer prepares for the company for any forecasted risk and

makes necessary plans to address it.

Let's Perform & Practice

In a whole sheet of paper write down how much is your spending based on your allowance. Kindly indicate if your allowance is given to you per day or per week.

If it's daily, how much is your average daily allowance?

Write down all the items you spend and the amount spent.

Compute for the balance of your allowance by deducting the expenses you listed from your daily/weekly allowance.

If you incurred a positive balance, what do you do with the money left?

If you incurred negative, where do you usually get additional money?

Particulars
1.

2.

3.
Amount
1.

2.

3.

Total (Spending) :

Less (Allowance) :

Savings (if applicable) :

IV. Let's Answer (10 minutes)

Instruction: Choose the letter of the correct answer.

1. Which area of finance whose function is to manage the financial resources of private individuals, non-government organizations, and private organizations?

A. Private Finance

B. Public Finance

C. Personal Finance

D. Business Finance

2. This is one of the financial decisions of the Corporate Finance Officer that includes the acquisition of non-current assets, investment portfolios, and pricing decisions of stocks and bonds?

A. Financing Decisions

B. Investing Decisions

C. Operating Decisions

D. Financial Decisions

3. Part of the corporate organization wherein they elect the board of directors and entitled to one voting right.

A. Shareholders

B. Board of Directors

C. Vice President

D. President

4. A division of Business Finance that answers the question, what kind of assets shall we acquire?

A. Capital Market

B. Financial Management

C. Financial Investment

D. Personal Finance

5. An area in finance that focuses on handling and managing of financial resources of a business organization?

A. Public Finance

B. Private Finance

C. Business Finance

D. Personal Finance