Kim Angelo Bagui Financial Management

BSBA FM 2 – 3 Assignment #1
1. Define Finance in at least 3 ways.
We can describe finance in a lot of ways. However, here’s 3 ways to define it.
First, as stated in Webster’s Dictionary, Finance is defined as “the system that
includes the circulation of money, the granting of credit, the making of investments,
and the provision of banking facilities.” Finance has many facets, which makes it
difficult to provide one concise definition. Second, Finance is defined as the
management of money and includes activities like investing, borrowing, lending,
budgeting, saving, and forecasting. (Corporate Finance Institute 2018) Lastly,
Finance is a broad term that describes activities associated with banking, leverage or
debt, credit, capital markets, money, and investments. Basically, finance represents
money management and the process of acquiring needed funds. (Kurt 2019)
2. Explain each of the areas of finance, distinguish one from the other.
The three areas of finance are Financial management, Capital markets and
Investment. First is the Financial Management it focuses on decisions relating to how
much and what types of assets to acquire, how to raise the capital needed to
purchase assets, and how to run the firm so as to maximize its value. The same
principles apply to both for-profit and not-for-profit organizations.
While the Capital markets, the second area of finance is relate to the markets
where interest rates, along with stock and bond prices are determined. This includes
the financial institutions that supply capital to businesses Banks, Investment banks,
stockbrokers, mutual funds, insurance companies, and the like bring together
“savers” who have money to invest and businesses, individuals, and other entities
that need capital for various purposes.
On the other hand, Investments is relate to decisions concerning stocks and
bonds and include a number of activities (1) Security analysis deals with finding the
proper values of individual securities (i.e. stocks and bonds). (2) Portfolio theory
deals with the best way to structure portfolios, or “baskets,” of stocks and bonds.
Rational investors want to hold diversified portfolio is an important issue for any
Investor. (3) Market analysis deals with the issue of whether stock and bond markets
at any given time are “too high,” “too low,” or “about right.”
Even though we differentiate these three areas, they are closely
interconnected. Banking is studied under capital markets, but a bank lending officer
evaluating a business’ loan request must understand corporate treasurer negotiating
with a banker must understand banking if the treasurer is to borrow on “reasonable”
terms. Additionally, financial decisions of all types depend on the level of interest
rates; so all people in corporate finance, investments, and banking must know
something about interest rates and the way they are determined.
3. Read 1-1b (p.6 of the prescribed textbook and discuss finance within
organizational set up (finance groups / departments) in at least 3 top
corporations in the Philippines.
 Every organization is different and no organizational structure is perfect. The
organizational structures show the different positions and functions of the officers. It
is a functional departmentalization because the jobs are specialized and performed
by people with common skills, knowledge, and orientations. Each position has its
own functions and their jobs are being divided and grouped based on their tasks and
specializations involved.
According to Rappler, the top 3 corporation are SM Investment Corp., San
Miguel Corp. and Ayala Corp. In the charts that are given above those top 3
corporations prioritize their finance department/team. In SM Investment Corporation's
organizational structure under Director Senen Mendiola and Director Teresita Sy are
the two financial officials VP Diana Diona Dionisio and VP Jeffrey Lim that means
they value their financial management. While in the San Miguel Corporation
organizational structure, Below the President and Chief Operating Officer, only the
Chief Finance Officer has five more categories the Financial Planning and Analysis,
Treasury, Investor Relations, Comptrollership and Planning, and Research. The five
categories under it have different functions but it’s all for managing their finance
properly. And like the first two corporations, the Ayala Corporation has also focus on
its finance department.
After analyzing the organizational structures of the top 3 corporations in our
country, I think the secret for their success is their finance group/department because
in business the finance is responsible for acquiring funds for the firm, managing
funds within the firm, planning for the expenditure of funds on various assets.
4. Determine the Philippine counterpart of Sarbanes Oxley Act. Explain.
In terms of public company audit committees, The Sarbanes-Oxley Act
requires listed companies to create board audit committees and specifies the rules
governing its composition and functions. The Sarbanes-Oxley Act requires all of the
members of the board audit committees to be independent from the listed company.
Independence means that the board audit committee members have not accepted
any other consulting, advisory, or compensatory fee from the listed company. It also
means that they are not otherwise affiliated to the company or any of its subsidiaries.
Its counterpart in the Philippines is the Code of Corporate Governance (SEC
2002) provides for the inclusion of independent directors in the board of public
companies. However, it does not require that all the members of the audit committee
be independent. The board in public companies in the Philippines may be composed
of at least five (5) but not more than fifteen (15) members elected by the stockholders
of which at least two (2) independent directors, or at least twenty percent (20%) of
the members of the Board, whichever is lesser.
Another is the corporate responsibility for financial reports. In Sarbanes-Oxley
Act it requires a certification of listed companies’ annual and/or quarterly reports by
the principal executive officer or officers, and principal financial officer or officers, or
persons performing similar functions. Therefore, the chief executive officers and the
chief financial officers expressly assume responsibility for the correctness and
accuracy of annual and/or quarterly reports. Their certification likewise assures the
integrity of their company’s system of internal controls, as well as the sufficiency of
disclosures of all material information and corrections made to deficiencies in internal
controls. The purpose of the requiring a certification is to be able to clearly identify
accountability and to hold as responsible for information contained in periodic
company reports those who are control of the disclosure of information and
preparation of reports, namely CEOs and CFOs of listed companies.
In the Philippines, the SEC released a Financial Disclosures Checklist
summarizing the disclosures required by SRC Rules 68 and 68.1 and current
SFAS/IAS in effect as of January 1, 2004. The checklist includes a Statement of
Management’s Responsibility certifying, among others, that: (1) financial statements
have been prepared in conformity with generally accepted accounting standards; (2)
management maintains a system of accounting and reporting which provides for the
necessary internal controls; (3) management has disclosed to the audit committee
and to its external auditor significant weaknesses in internal controls; and (4) its
board of directors has reviewed the financial statements.
5. Distinguish Finance from Accounting and Economics. Illustrate the
relationships.
Though Finance and Economics are often taught and presented as separate
disciplines, they are interrelated and inform and influence each other. The
macroeconomic environment defines the setting within which a firm operates and the
microeconomic theory provides the conceptual underpinning for the tools of final
decision-making. The macroeconomic factors like the growth rate of the economy,
the domestic savings rate, the role of the government in economic affairs, the tax
environment, the nature of external economic relationships, the availability of funds to
the corporate sector, the rate of inflation, the real rate of interest and the terms on
which the firm can raise finances define the environment in which the firm operates.
No financial manager can afford to ignore the key developments in the macroscopic
sphere and the impact of the same on the firm.
While an understanding of the macroeconomic developments sensitizes the
financial manager to the opportunities and threats in the market environment, a firm
grounding in macroeconomic principles sharpens their analysis of decision
alternatives. Finance, in essence, is applied microeconomics according to which a
decision should be guided by a comparison of incremental benefits and costs –
applies to some managerial decisions in finance. A basic knowledge of
macroeconomics is necessary for understanding the environment in which the firm
operates and a good grasp of microeconomic principles is helpful in sharpening the
tools of financial decision-making.
And as to the relationship of Finance to Accounting. The role of an accountant is
like a skilled technician who takes measures of a company’s health and writes a
report. Financial managers examine the data prepared by accountants and make
recommendations to top management regarding strategies for improving the
company’s financial strength. A manager cannot make sound financial decisions
without understanding accounting information. Their functions are closely related and
almost invariably fall within the domain of the chief financial officer. Accounting is
concerned with scorekeeping, whereas finance is aimed at value maximizing. The
primary aim of accounting is to measure the performance of the firm, assess its
financial condition and find the base for tax payment. While the principal goal of
financial management is to create shareholders value by investing in positive net
present value projects and minimizing the cost of financing. Of course, financial
decision making requires considerable inputs from accounting. The financial
manager uses these data, either in raw form or after certain adjustments and
analyses, as an important input to the decision-making process. The accountant
prepares the accounting reports based on the accrual method recognizes revenues
when the sale occurs. The focus of the financial manager, however, is on cash flows.
He is concerned about the magnitude, timing and risk of cash flows as these are the
fundamental determinants of values.
Submit in yellow paper tagged as Assignment #1 Follow the APA format in
citation of sources.

Reference:
Kurt, D. (2019). What Is Finance? Retrieved from
https://www.investopedia.com/ask/answers/what-is-finance/
Organizational Chart - Ayala Corporation. (n.d.). Retrieved from
https://ayala.com.ph/board-directors
Organizational Chart - San Miguel Corporation. (n.d.). Retrieved from
https://www.sanmiguel.com.ph/page/organizational-chart
Organizational Chart - SM Investment Corporation. (n.d.). Retrieved from
https://elb.smicit.com/company/board-of-directors
Reddy, V. (2018). Relationship of Finance to Economics and Accounting. Retrieved
from https://edugeneral-
org.cdn.ampproject.org/v/s/edugeneral.org/blog/economy/relationship-of-finance-to-
economics-and-accounting/
Rivas, R. (2019). Philippine companies among Forbes Asia's best firms in 2019.
Retrieved from https://amp.rappler.com/business/238738-list-philippine-companies-
forbes-asia-best-over-billion-2019
Tomboc, J. B. (2004). A Study of the U.S. Sarbanes-Oxley Act in Relation to
Philippine Law on Corporate Governance.
Vipond, T. (2018). Corporate Finance Institute. What Is Finance? Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-finance-
definition/