MATIBAG, Kyle Camille S.

BSA 3-A BAF102

FINANCIAL MANAGEMENT Deals with the procurement of funds and their effective management; effective
management of funds

1. ECONOMICS micro and macro environmental factors have to be considered in making investment decisions
2. ACCOUNTING records provide valuable information for assuring sound decisions for a business concern
3. MATHEMATICS mathematical and statistical tools for calculations involving the time value of money, cost of
capital, risk analysis, capital structure, ratio analysis, and other significant computations
4. PRODUCTION MANAGEMENT deals with raw materials, machineries, wages, operating expenses, that all need
funds which in turn produce profit for the company
5. MARKETING the output of production needs to be sold in order to produce profit; needs funds in return to
carry out its approaches
6. HUMAN RESOURCE provides manpower to all the functional areas of the business

OVERLAP (INVESTOR & ACCOUNTING, ECONOMICS, FINANCE)

1. ACCOUNTING wants to see whether a company had past financial success and wants to predict what the
company will look like in the future
2. ECONOMICS wants to know what the overall economy will look like in the future and how the company will
interact with its competitors
3. FINANCE may use finance to figure out what his/her investment will be worth in the future

FUNCTIONS OF FINANCE

1. INVESTMENT DECISIONS capital budgeting decisions; long-term asset mix decisions

2. LIQUIDITY DECISIONS working capital decisions; short-term asset mix decisions
Management of current assets (working capital management)
Concerned with short-term survival of firm
Greater liquidity if more funds are tied up in current assets
However, funds also have economics costs
Idle current assets do not earn anything
Higher liquidity is at the cost of profitability
Proper balance must be maintained between liquidity and profitability
3. FINANCE DECISIONS capital structure decisions; capital mix decisions
Main Sources of Funds:
a. Shareholders Funds bear dividends (depending on profitability of firm); more permanent source
b. Borrowed Funds interest-bearing(irrespective of profitability); may carry with it financial risk
4. DIVIDEND DECISIONS profit-allocation decisions
Dividend portion of profits distributed to shareholders
Can be declared either from the current or accumulated profits of the company
Non-distribution of dividends affects the market price of equity shares
Higher rate of dividend beyond the market expectations increases the market price of shares; however, it
leaves smaller portion of retained earning for expansion
FINANCE MANAGER FUNCTIONS

1. Forecasting of funds how much do we need? Get?

2. Management of funds
3. Investment of funds
4. Acquisition of funds

*ULTIMATE GOAL = Maximize Shareholders Wealth!

Must be aware that he/she is ultimately working for the firms shareholders
Choices will generally have a direct impact on shareholders wealth

1. MONEY HAS A TIME VALUE a peso today is worth more than a peso that will be received in the future; a peso
invested today can earn interest, so that at the end of the term, the amount will be more than one peso
2. RISK-RETURN TRADEOFF generally, investors are risk-averse; they prefer to get a return that is certain rather
than uncertain; higher the risk, higher the return
3. CASH FLOWS ARE VALUED MORE profit is a measure of the performance of business; however, cash flows
determine an investments value
Company A may be short of cash, yet it reported profit; Company B may have reported loss, yet has cash to
pay to creditors

MACROECONOMICS performance, structure, behavior, and decision-making of an economy as a whole rather than
individual markets; national, regional, global economics

GDP, Unemployment rates, Price indices

FISCAL POLICY measures employed by government

 Source of Tax Revenues: Source of Non-Tax Revenues:
a. Income taxes a. Bureau of
b. E-VAT b. Privatization
c. Tariffs & duties c.

MARCOS indirect tax

CORY inherited a large fiscal deficit (1986 tax reform program & VAT)

RAMOS budget surpluses due to substantial gains from massive sale of government assets and strong foreign
investment; PRIVATIZATION

ESTRADA faced a large fiscal deficit due to decrease in tax effort and repayment of Ramos debt to
contractors/suppliers

ARROYO E-VAT law was enacted, national debt-to-GDP ratio peaked, and underspending on public
infrastructure and other capital expenditures was observed

*YOU SHOULD SPEND WHAT WAS BUDGETED

MONETARY POLICY measures/actions taken by the central bank to influence general price level and level of liquidity in
the economy

Expansionary Monetary Policy: Contractionary Monetary Policy:

o Increase level of liquidity/money
supply; higher inflation path
o Lowering policy interest rates,
reduction of reserve requirements
o Tends to encourage economic activity
as more funds are made available for
lending by banks.
o Decrease level of liquidity/money
supply; relatively lower inflation path
o Increasing policy interest rates and
reserve requirements
o Tends to limit economic activity

HOW THE BSP IMPLEMENTS MONETARY POLICY To contract/expand liquidity in the financial system

1. / BSPs policy interest rates

2. / reserve requirements
3. Encouraging/discouraging deposits in the special deposit account (SDA) facility by banks and trust entities of
BSP-supervised financial institutions
4. / the rediscount rate (of interbank borrowingsbidding) on loans extended by the BSP to banking institutions
on a short-term basis against eligible collaterals of banks borrowers
5. Outright sales/purchases of the BSPs holding of government securities (treasury bills)

*The BSPs primary monetary policy instruments are its overnight reverse repurchase (borrowing) rate and overnight
repurchase (lending) rate

MARKET STRUCTURES

PERFECT
TYPE OF MARKET MONOPOLISTIC OLIGOPOLY MONOPOLY
COMPETITION
No. of Firms Many small Many Few large 1
 Considerable pricing
Control of Price Price-takers Some pricing power Some pricing power
power
Barriers to Entry Low-entry Medium-entry High-entry Very high-entry
Example Vegetables Restaurants Oil firms Unique products

DEREGULATION act/process of removing or reducing state regulations; opposite of regulation, which refers to process
of government regulating certain activities

PRIVATIZATION process of transferring ownership of a business, enterprise, agency, public service, property from
public sector (government) to a private sector

Government outsourcing of services/functions to private firms (e.g. revenue collection, law enforcement, &
prison management)
SUPPORT: studies show that private market factors can more efficiently deliver more goods and services than
governments due to free market competition. Over time, this tends to lead to lower prices, improved growth,
more choices, less red tape, etc.
OPPOSE: government should be responsible for goods and services