MANAGING THE

FINANCE
FUNCTION

FINANCE FUNCTION
Important management responsibility
Procurement and administration of funds with the view
of achieving the objectives of business
One of the three basic management functions

THE FINANCE FUNCTION: A PROCESS FLOW

Determination
of Fund
requirements

Procurement
of funds

Effective and
efficient use of
fund

THE DETERMINATION OF FUND REQUIREMENTS

To finance daily operations

To finance the firms credit services
To finance the purchase of inventory
To finance the purchase of major assets

THE SOURCES OF FUNDS

Cash sales
Collection of accounts receivables
Loans and credits
Sale of assets
Ownership contribution
Advances from customers

SHORT TERM SOURCES OF FUNDS

Advantages

Disadvantages

Supplies of short-term
funds

Easier to obtain

Mature more frequently

Trade creditors

Often less costly

More costly

Commercial banks

Offers flexibility to borrowers

Commercial paper houses

Finance companies
Factors
Insurance companies

LONG TERM SOURCES OF FUNDS

Long term debts
Term loans
bonds
Common stocks
Retained earnings

ADVANTAGES OF TERM LOANS

Funds can be generated more quickly than other longterm sources
They are flexible
The cost of issuance is low compared to other longterm sources

TYPES OF BONDS
Type of Bond

Feature

Debentures

No collateral requirement

Mortgage bond

Secured by real estate

Collateral trust bond

Secured by stocks and bonds owned by the

issuing corporation

Guaranteed bond

Payment of interest or principal is guaranteed

by one or more individuals or corporations

Subordinated debentures

With an inferior claim over other debts

Convertible bonds

Convertible into shares of common stock

Bonds with warrants

Warrants are options which permit the holder

to buy stock of the issuing company at a
stated price

Income bonds

Pays interest only when earned

BEST SOURCES OF FINANCING

Flexibility
Risk
Income
Control
Timing
Other factors

THE FIRMS FINANCIAL HEALTH

To make profits for the owners
To satisfy creditors with the repayment of loans plus
interest
To maintain the viability of the firm

INDICATORS OF FINANCIAL HEALTH

Balance sheet
Income statement
Statement of changes in financial position

RISK MANAGEMENT AND INSURANCE

Risks refers to the uncertainty concerning loss or injury
Fire
Theft
Floods
Accidents
Nonpayment of bills by customers
Disability and death
Damage claim from other parties

TYPES OF RISK
Pure
Speculative

RISK MANAGEMENT
And organized strategy for protecting and conserving
assets and people
The purpose is to choose intelligently from among all
the available methods of dealing with risk in order to
secure the economic survival of the firm

METHODS OF DEALING WITH RISK

The risk may be avoided

The risk may be retained
The hazard may be reduced
The losses may be reduced
The risk may be shifted

THANK
YOU!
Prepared by:
RALPH N. BUDIONGAN
RALPH ERWIN P. CARDOSO
ANA JEAN M. CABRIGAS