Goal of Financial Manager

The goal of the financial manager must be consistent with the mission of the
corporation.
Corporate Mission: To maximize the value shareholders wealth.
Agency Considerations in Corporate Finance
Managers are the agents, and
Stock holders ate the principal;
Agency Problems arise when there is conflict of interest between the stockholders
and the managers
How to Reduce Agency Problems?
1. Monitoring
2. Compensation Plans
3. Others
Four Basic Principle of Finance
1.
2.
3.
4.

Money has a time value;

There is a risk-return trade-off;
Cash flows are the source of value;
Market prices reflects information;

Conclusion
Finance is the study of how people and business evaluate investments and
raise capital to fund the. It addresses the different decision a firm must take in order
to earn more profit and invest well.
Application

Studying Finance does not only educate us on professional aspects but also
on personal aspects. In a world where there are many choices, making a better
decision(may it be long term or short term decisions) is important for it dictates
what our future might be.

Conclusion
Our banking systems had come a long way from where it has begun. Imagine
from just one banking institutions we have now hundreds of them. Their purpose in
only for charity unlike before but for commercial, business, marketing purpose as
well.
The Banko Sentral ng Pilipinas has a vital role in our everyday life; it make
sure that our every peso count, that it wont lost it value.
Lesson learn

~Our past have a lot to do on what we are today. It shapes us; mold us to become a
better version of us yesterday.

Conclusion
Putting up a business is not easy as counting 1, 2, 3. There are many things
you need to consider; the environment, your place, people around you etc. think
about it twice, thrice, ask for opinions before putting it up so your money wont
come into waste.
To gain profit is one of the primary reasons why man put up a business. Why
put up a business if your only reason is to help? Better to look for a charity rather
than to put a business.

Application;
Every person has a unique role in our life. Theyre there because theres
something they need to do which may affect our life and decisions. This may
decisions will trigger who we are tomorrow.

Conclusion
There are different factors affecting a decision. There may be many choices
but two things are for sure; the choices may lead us to a great or a greater future.

You only know his worth when hes not around

~the time when I forgot to
bring my calculator
Lesson learned:
ALWAYS
BRING YOUR
CALCULATOR WHEN
DURING FINANCE, YOULL
NEVER KNOW WHEN
YOU WILL NEED IT.

Conclusion
Working Capital Management is the management of short term investment
and financing of the company. This affects a short period of time.
Application
Having a decision which is only effective for short time is good, but ho w
about tomorrow? If your short time plan is no longer applicable, will you start apply
another short term decision? Why not trying a long term decision?

Risk Management
Risk is an integral part of business and investments;
Key Aspects of Risk Management
a. Risk Identification;
b. Risk Quantification;
c. Risk Control;
Risk Management Approaches
1.
2.
3.
4.

Risk Avoidance- avoid the risk altogether;

Loss control-reduce the possibility of loss;
Diversification
Risk transfer- risk is transferred to another party who is more willing and
capable of bearing risk;
5. Risk retention- the firm decides to retain the risk due to a very high cost of
risk transfer;
6. Risk sharing- combination of risk-transfer and risk-retention;
Risk Calssification
1. Credit Risk-the risk of the other party will not live up to its contractual
obligation;
5 Cs Of Credit
Character(borrower)-inherent traits and personal character of
the borrower;
Capital(owned)- the movable and immovable properties that the
borrower own;
Capacity to pay- ability of the borrower to earn in the future to
be able to repay the loan at maturity;
Condition/Circumstance-external factors that may have
significant effects on the companys operations and could affect
the future ability to generate income and repay the loan;
Collateral- any property that the borrower is able to give as a
security in exchange for the credit that is granted;
2. Liquidity Risk
a. Funding Liquidity Risk- the inability to raise funds at normal cost;
b. Trading Liquidity Risk- the lack of trading depth in the market for a
security or class of assets
Current Ratio=CA /CL
3. Operational Risk- the risk of loss resulting from inadequate or failed internal
processes, people, and systems, or from external events;
Market Risk- risk that the value of an investment will decrease due to moves in
market factors;

Bond equivalent yield = Face value Purchase price _

365
_
Purchase price
Number of days to maturity
Discount-basis yield = Face value Purchase price _
360
_
Face value
Number of days to maturity
Operating cycle = Number of days of inventory + Number of days of receivables
Net operating cycle = days of inventory + days of receivables days of payable

Short-term investments are temporary stores of funds.

o Considerations:

Liquidity
Maturity
Credit risk

Yield
Requirement of
collateral

Yields on Short-Term Securities

The nominal rate is the stated rate of interest, based on the face value of the
security.
The yield is the actual return on the investment if held to maturity.

Managing inventory- The objective of managing inventory is to determine and

maintain the level of inventory that is sufficient to meet demand, but not more than
necessary.
Managing Short Term Financing- The objective of a short-term financing
strategy is to ensure that the company has sufficient funds, but at a cost (including
risk) that is appropriate

Conclusion

It is better to increase the amount

of the loan rather than to increase interest rate. If
you charge too much interest, you may lose
potential clients, however when you charge too
little interest, you might win some clients that you
do not want.

It is better to declare bankruptcy

than to continue lending even if you do not have
enough money to pay.

Application

Sometimes you have to let go of

the things you want, to secure the things you
need. Letting go doesnt always mean youve
failed. Sometimes its the best thing you can do.

Letting go is hard, but sometimes

holding on is harder

 Other stock features and their characteristics:

Treasury stocks- one issued by the corporation, fully paid for, reacquired by the
corporation by
purchase or other means, and not cancelled;
o Major Use of Treasury Stock
1. Stock options;
2. Acquisitions;
3. Investments;
4. Stock splits;
5. Stock dividends;
6. Conversion of convertible securities including warrants;
Per Value Stock- stock with stated value;
No par Value Stock- shares of stocks without face or nominal value;
Book Value of Stock- stated value of a stock based on the accounting concepts of
recorded value as
reflected in the balance sheet;

Market Value- value placed at any one time on a stock traded in a stock exchange or
over the counter,
or even between parties in an encumbered transaction without duress;
Economic Value value of a stock as reflected by its current and future earnings
power, plus any
potential recovery of all or part of the investment;

Application

To invest in yourself is the

greatest investment of all.

going to be.

Far from what I once was but not yet what I am

 Bulacan State University

College of Criminal Justice Education
City of Malolos, Bulacan

In partial
Fulfillment of the Requirement for
Principle of Finance
(Fin 413 LM)

Submitted by: Grande, Mhel Rose Camille G

Legal Management 4-A
1st Semester 2015-2016

Submitted to: Mr. Eugene Mutuc

Professor/ Instructor