IMUS INSTITUTE

Nueno Avenue, City of Imus, Cavite

Assignment on Financial Management 1

A.Y. 2016- 2017
First Semester

Submitted by:
Jayson C. Leyba
4 BSBA- MA

Submitted to:
Ms. Jenjelyn Nuez

A financial manager is a person who takes care of all the important financial
functions of an organization. The person in charge should maintain a far sightedness in order
to ensure that the funds are utilized in the most efficient manner. His actions directly affect
the profitability, growth and goodwill of the firm.
Functions of Financial Manager
1. Raising of Funds
In order to meet the obligation of the business it is important to have enough cash and
liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a
financial manager to decide the ratio between debt and equity. It is important to maintain a
good balance between equity and debt.
2. Allocation of Funds
Once the funds are raised through different channels the next important function is to
allocate the funds. The funds should be allocated in such a manner that they are optimally
used. In order to allocate funds in the best possible manner the following point must be
considered

The size of the firm and its growth capability

Status of assets whether they are long-term or short-term
Mode by which the funds are raised

These financial decisions directly and indirectly influence other managerial activities.
Hence formation of a good asset mix and proper allocation of funds is one of the most
important activity
3. Profit Planning
Profit earning is one of the prime functions of any business organization. Profit earning
is important for survival and sustenance of any organization. Profit planning refers to proper
usage of the profit generated by the firm.
Profit arises due to many factors such as pricing, industry competition, state of the
economy, mechanism of demand and supply, cost and output. A healthy mix of variable and
fixed factors of production can lead to an increase in the profitability of the firm.
4. Understanding Capital Markets
Shares of a company are traded on stock exchange and there is a continuous sale and
purchase of securities. Hence a clear understanding of capital market is an important
function of a financial manager. When securities are traded on stock market there involves a
huge amount of risk involved. Therefore a financial manger understands and calculates the
risk involved in this trading of shares and debentures.
Its on the discretion of a financial manager as to how to distribute the profits. Many
investors do not like the firm to distribute the profits amongst shareholders as dividend
instead invest in the business itself to enhance growth. The practices of a financial manager
directly impact the operation in capital market.

Responsibilities of a Financial Manager

Financial managers perform data analysis and advise senior managers on profitmaximizing ideas. Financial managers are responsible for the financial health of an
organization. They produce financial reports, direct investment activities, and
develop strategies and plans for the long-term financial goals of their organization.
Financial managers typically:

Prepare financial statements , business activity reports, and forecasts,

Monitor financial details to ensure that legal requirements are met,
Supervise employees who do financial reporting and budgeting,
Review company financial reports and seek ways to reduce costs,
Analyze market trends to find opportunities for expansion or for acquiring other
companies,
Help management make financial decisions.

The role of the financial manager, particularly in business, is changing in response to

technological advances that have significantly reduced the amount of time it takes to
produce financial reports. Financial managers' main responsibility used to be monitoring a
company's finances , but they now do more data analysis and advise senior managers on
ideas to maximize profits. They often work on teams , acting as business advisors to top
executives.
Definition of Financial Management
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.
Scope of Financial Management
Investment decisions includes investment in fixed assets (called as capital budgeting).
Investment in current assets are also a part of investment decisions called as working capital
decisions.
Financial decisions - They relate to the raising of finance from various resources which will
depend upon decision on type of source, period of financing, cost of financing and the returns
thereby.
Dividend decision - The finance manager has to take decision with regards to the net profit
distribution. Net profits are generally divided into two:

Dividend for shareholders- Dividend and the rate of it has to be decided.

Retained profits- Amount of retained profits has to be finalized which will depend upon
expansion and diversification plans of the enterprise.

Forms of Business Organizations

Sole Proprietorship

The vast majority of small businesses start out as sole proprietorships. These firms are owned
by one person, usually the individual who has day-to-day responsibility for running the business.
Sole proprietorships own all the assets of the business and the profits generated by it. They also
assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the
public, you are one in the same with the business.
Advantages of a Sole Proprietorship
Easiest and least expensive form of ownership to organize.
Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.
Profits from the business flow-through directly to the owners personal tax return.
The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.
May be at a disadvantage in raising funds and are often limited to using funds from personal
savings or consumer loans.
May have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
Some employee benefits such as owners medical insurance premiums are not directly
deductible from business income (only partially as an adjustment to income).

Partnership

By the contract of partnership two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.
Advantages of a Partnership
Partnerships are relatively easy to establish; however time should be invested in developing the
partnership agreement.
With more than one owner, the ability to raise funds may be increased.

 The profits from the business flow directly through to the partners personal tax return.
Prospective employees may be attracted to the business if given the incentive to become a
partner.
The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
Partners are jointly and individually liable for the actions of the other partners.
Profits must be shared with others.
Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on tax returns.
The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Corporation

A corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its existence.
Advantages of a Corporation
Shareholders have limited liability for the corporations debts or judgments against the
corporation.
Generally, shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their actions, such as the
failure to withhold and pay employment taxes.
Corporations can raise additional funds through the sale of stock.
A Corporation may deduct the cost of benefits it provides to officers and employees.
Can elect S Corporation status if certain requirements are met. This election enables company
to be taxed similar to a partnership.
Disadvantages of a Corporation
The process of incorporation requires more time and money than other forms of organization.
Corporations are monitored by federal, state and some local agencies, and as a result may have
more paperwork to comply with regulations.
Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible from business income; thus this income can be taxed twice.

References:

http://www.kcsourcelink.com/learning-center/starting-a-business/register-andlicense-your-business/forms-of-business-organization
https://www.boundless.com/business/textbooks/boundless-businesstextbook/financial-management-19/introduction-to-financial-management-114/therole-of-financial-managers-534-10164/
http://www.managementstudyguide.com/role-of-financial-manager.htm
http://www.managementstudyguide.com/financial-planning.htm