Senior High School

Business Finance
Quarter 1 – Module 1: Definition of
Finance, Financial Manager’ Activities
and Financial Institutions and Markets
Lesson 3 – Flow of Funds within an Organization-
Through and from the Enterprise and the Role of
Financial Manager

Writer:
ELSA A. LAQUINDANUM
Master Teacher-I San Isidro HS
Editors:
JANE P. VALENCIA, EdD – Math/ABM Supervisor
CHAIRMAN
ELSA A. LAQUINDANUM – Master Teacher1I
CHRISTINA P. SANTOS – Master Teacher I
 What I Need to Know

This module was designed and written with you in mind. It is here to help you master
the Introduction to Business Finance. The scope of this module permits it to be used in
many different learning situations. The language used recognizes the diverse vocabulary
level of students. The lessons are arranged to follow the standard sequence of the
course. But the order in which you read them can be changed to correspond with the
textbook you are now using.
The Module 1 contains three lessons, namely:
• Lesson 1 – Major Role of Financial Management and the Different Individuals
Involved
• Lesson 2 - Distinguish a Financial Institution from Financial Instrument and
Financial Market
• Lesson 3 – Flow of Funds within an Organization-Through and from the
Enterprise and the Role of Financial Manager
After going through this module, you are expected to:
1. Explain major role of financial management and the different individuals
involved
2. Distinguished a financial institution from financial instrument and financial
market
3. Explain the flow of funds within an organization – through and from the
enterprise – and the role of the financial manager.

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 What I Know
Multiple Choice: Choose the correct answer and write it on your answer sheet.
1. The primary goal of the financial manager is
A. minimizing risk.
B. maximizing profit.
C. maximizing wealth.
D. minimizing return.

2. Corporate owner's receive realizable return through A. earnings per share and cash
dividends.
B. increase in share price and cash dividends.
C. increase in share price and earnings per share.
D. profit and earnings per share.

3. The wealth of the owners of a corporation is represented by

A. profits.
B. earnings per share.
C. share value.
D. cash flow.

4. Wealth maximization as the goal of the firm implies enhancing the wealth of
A. the Board of Directors.
B. the firm's employees.
C. the federal government.
D. the firm's stockholders.

5. The goal of profit maximization would result in priority for A. cash flows available
to stockholders.
B. risk of the investment.
C. earnings per share.
D. timing of the returns.

6. Profit maximization as a goal is not ideal because it does NOT directly consider
A. risk and cash flow.
B. cash flow and stock price.
C. risk and EPS.
D. EPS and stock price.

7. Profit maximization as the goal of the firm is not ideal because A. profits are only
accounting measures.
B. cash flows are more representative of financial strength.
C. profit maximization does not consider risk.
D. profits today are less desirable than profits earned in future years.

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 E.

8. Profit maximization fails because it ignores all EXCEPT A. the timing of returns.
B. earnings per share.
C. cash flows available to stockholders.
D. risk.

9. The key variables in the owner wealth maximization process are A. earnings per
share and risk.
B. cash flows and risk.
C. earnings per share and share price.
D. profits and risk.

10. Cash flow and risk are the key determinants in share price. Increased cash flow
results in ________, other things remaining the same.
A. a lower share price
B. a higher share price
C. an unchanged share price
D. an undetermined share price

11. Cash flow and risk are the key determinants in share price. Increased risk, other
things remaining the same, results in A. a lower share price.
B. a higher share price.
C. an unchanged share price.
D. an undetermined share price.
12. Financial managers evaluating decision alternatives or potential actions must
consider A. only risk.
B. only return.
C. both risk and return.
D. risk, return, and the impact on share price.

13. A financial manager must choose between four alternative Assets: 1, 2, 3, and 4.
Each asset costs $35,000 and is expected to provide earnings over a three-year
period as described below.

Based on the profit maximization goal, the financial manager would choose
Asset Year 1 Year 2 Year 3
1 21,000 15,000 6,000
2 9,000 15,000 21,000
3 3,000 20,000 19,000
4 6,000 12,000 12,000
A. Asset 1.
B. Asset 2.
C. Asset 3.
D. Asset 4.

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14. A financial manager must choose between three alternative investments. Each asset
is expected to provide earnings over a three-year period as described below. Based
on the wealth maximization goal, the financial manager would
Asset Year 1 Year 2 Year 3

1 21,000 9,000 15,000

2 15,000 15,000 15,000

3 9,000 21,000 15,000

4 45,000 45,000 45,000

A. choose Asset 1.
B. choose Asset 2.
C. choose Asset 3.
D. be indifferent between Asset 1 and Asset 2.

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 Flow of Funds within an
Lesson Organization-Through and from
3 the Enterprise and the Role of
Financial Managers
Financial management deals with decisions that are supposed to maximize the value
of shareholders’ wealth, collect fund for the company at a low cost and use this collected
fund for earning maximum profits and plan and control the finance of the company to
achieve objectives of company

What’s In

Flex Your Financially Inclined Mind

Forms of Business Organizations. Identify the business organization depicted by the
image.

In addition to the material in the main text, you will also see this box in the body of
the module.

Notes to the Teacher

This module includes concepts and strategies that can help you guide
students through this course.

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As the facilitator of this module, you are expected to orient and guide the learners on
understanding of key concepts related to the identification of potential business
opportunities within the community. You are also expected motivate and assist the
learners in accomplishing the different tasks and activities included in this module.
Lastly, you are to monitor the progress of the learners and give feedback to help them
improve further their learning.

What’s New
Let’s raise your level of business finance manager skills. Enumerate the 4 primary
functions and 10 emerging roles of a financial manager.

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 What is It

FINANCIAL MANAGERS AND THEIR MAIN REPONSIBILITIES

Financial Manager – person who takes care of all the important financial
functions of an organization

MAIN FUNCTIONS OF A EMERGING ROLES OF A

FINANCIAL MANAGER FINANCIAL MANAGER
• Performing financial 1. Financial engineering
analysis and 2. Foreign exchange management
planning
3. Treasury operators
• Investment decision 4. Investors communication
5. Management control
• Financing decision 6. Investment planning
7. Pension fund management
• Dividend decision
8. Credit manager
9. Tax management
10. Insurance risk management

GUIDING PRINCIPLES FOR FINANCIAL MANAGEMENT SYSTEMS

consistency financial policies and systems must remain consistent over time

accountability demonstrate to all stakeholders how you have used your

resources and what you have achieved

transparency making information available to all stakeholders

integrity the quality of being honest and having strong moral principles

financial the way in which a person controls or organizes financial

stewardship resources

accounting system for keeping financial records and documentation must

standards observed accepted external accounting standards

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FLOW OF FUNDS
The flow of funds accounts lists the sources of all funds received and the uses to
which they are put within the economy. They show the financial transactions among
different sectors of the economy and the link between saving and investment
aggregates with lending and borrowing by them.

ROLE OF FINANCIAL ROLE OF FINANCIAL ROLE OF INVESTORS

MANAGERS MARKETS
Financial managers make The financial markets Investors provide the funds
financing decisions that provide a forum in which that are to be used by
require funding from firms can issue securities to financial managers to
investors in the financial obtain the funds that they finance corporate growth.
markets. need and in which
investors can purchase
securities to invest their
funds.

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 What’s More
List down under the respective column the roles of financial managers, financial
markets and investors.

ROLE OF FINANCIAL ROLE OF FINANCIAL ROLE OF INVESTORS

MANAGERS MARKETS

What I Have Learned

1. Financial management deals with decisions that are supposed to maximize the
value of shareholders’ wealth; collect fund for the company at a low cost and use
this collected fund for earning maximum profits and plan and control the finance
of the company to achieve objectives of company
2. Financial manager – person who takes care of all the important financial
functions of an organization function such as raising of funds, allocation of
funds, profit planning and understanding capital markets
3. The flow of funds accounts lists the sources of all funds received and the uses
to which they are put within the economy. They show the financial transactions
among different sectors of the economy and the link between saving and
investment aggregates with lending and borrowing by them

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 What I Can Do
A. List down the lenders/savers on the yellow box while the borrowers/spenders
on the green box.

B. Write PF if what is being said is a primary function of a financial manager while

ER if what is being said is an emerging role of a financial manager.
1. Financial engineering 10. Tax management
2. Foreign exchange management 11. Insurance risk
3. Treasury operators management
4. Investors communication 12. Financial engineering
5. Management control 13. Foreign exchange
6. Investment planning management
7. Pension fund management 14. Treasury operators
8. Credit manager 15. Investors
9. Performing financial analysis and planning communication

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 Assessment
1. The primary goal of the financial manager is
A. minimizing risk.
B. maximizing profit.
C. maximizing wealth.
D. minimizing return.

2. Corporate owner's receive realizable return through A. earnings per share and
cash dividends.
a. increase in share price and cash dividends.
b. increase in share price and earnings per share.
c. profit and earnings per share.

3. The wealth of the owners of a corporation is represented by

A. profits.
a. earnings per share.
b. share value.
c. cash flow.

4. Wealth maximization as the goal of the firm implies enhancing the wealth of
A. the Board of Directors.
a. the firm's employees.
b. the federal government.
c. the firm's stockholders.

5. The goal of profit maximization would result in priority for A. cash flows
available to stockholders.
a. risk of the investment.
b. earnings per share.
c. timing of the returns.

6. Profit maximization as a goal is not ideal because it does NOT directly consider
A. risk and cash flow.
a. cash flow and stock price.
b. risk and EPS.
c. EPS and stock price.

7. Profit maximization as the goal of the firm is not ideal because A. profits are
only accounting measures.
a. cash flows are more representative of financial strength.
b. profit maximization does not consider risk.
c. profits today are less desirable than profits earned in future years.

8. Profit maximization fails because it ignores all EXCEPT A. the timing of returns.
a. earnings per share.

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 b. cash flows available to stockholders.
c. risk.

9. The key variables in the owner wealth maximization process are A. earnings per
share and risk.
a. cash flows and risk.
b. earnings per share and share price.
c. profits and risk.

10. Cash flow and risk are the key determinants in share price. Increased cash flow
results in ________, other things remaining the same.
A. a lower share price
a. a higher share price
b. an unchanged share price
c. an undetermined share price

11. Cash flow and risk are the key determinants in share price. Increased risk, other
things remaining the same, results in A. a lower share price.
a. a higher share price.
b. an unchanged share price.
c. an undetermined share price.
12. Financial managers evaluating decision alternatives or potential actions must
consider A. only risk.
a. only return.
b. both risk and return.
c. risk, return, and the impact on share price.

13. A financial manager must choose between four alternative Assets: 1, 2, 3, and
4. Each asset costs $35,000 and is expected to provide earnings over a three-
year period as described below.

Based on the profit maximization goal, the financial manager would choose

Asset Year 1 Year 2 Year 3

1 21,000 15,000 6,000
2 9,000 15,000 21,000
3 3,000 20,000 19,000
4 6,000 12,000 12,000
A. Asset 1.
B. Asset 2.
C. Asset 3.
D. Asset 4.

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14. A financial manager must choose between three alternative investments. Each
asset is expected to provide earnings over a three-year period as described below.
Based on the wealth maximization goal, the financial manager would
Asset Year 1 Year 2 Year 3
21,000 15,000
1 9,000
15,000 15,000
2 15,000
15,000
3 9,000 21,000
45,000 45,000
4 45,000
A. choose Asset 1.
B. choose Asset 2.
C. choose Asset 3.
D. be indifferent between Asset 1 and Asset 2.

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 Additional Activities
GUIDING PRINCIPLES FOR FINANCIAL MANAGEMENT SYSTEMS. Give what is being
described by completing the crossword puzzle.

Across Down
1. demonstrate to all stakeholders how you
have used your resources and what you 2. the quality of being honest
have achieved and having strong moral
4. making information available to all principles
stakeholders
3. financial policies and
5. the way in which a person controls or systems must remain
organizes financial resources consistent over time
6. system for keeping financial records and
documentation must observed accepted external
accounting standards

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 Answer Key

What I Know/Pre-Assessment
1. C
2. B
3. C
4. D
5. C
6. A
7. C
8. B
9. B
10. B
11. A
12. D
13. B
14. A

Assessment Additional Activities

15. C Across
16. B
17. C 1.accountability
18. D 4. transparency
19. C
20. A 5. financial stewardship
21. C
6. accounting standards
22. B
23. B Down
24. B
25. A 2. integrity
26. D 3. consistency
27. B
28. A

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 Development Team of the Module

Writer: ELSA A. LAQUINDANUM – Master Teacher I

Editor: JANE P. VALENCIA, EdD – EPS – Mathematics
Reviewer: JANE P. VALENCIA, EdD – EPS – Mathematics
ELSA A. LAQUINDANUM – Master Teacher I
CHRISTINA P. SANTOS – Master Teacher I
Illustrator: ELSA A. LAQUINDANUM – Master Teacher I
Layout Artist: BERNARD F. SOLUTA – MT-I San Juan HS
ELSA A. LAQUINDANUM – Master Teacher I
CHRISTINA P. SANTOS – Master Teacher I
Language Reviewer:

Management Team

ZENIA G. MOSTOLES, EdD, CESO V, Schools Division Superintendent

LEONARDO C. CANLAS, EdD, CESE. Asst. Schools Division Superintendent
ROWENA T. QUIAMBAO, CESE, Asst. Schools Division Superintendent
CELIA R. LACNALALE, PhD, CID Chief
JANE P. VALENCIA, EdD, Education Program Supervisor, Mathematics
JUNE E. CUNANAN, Education Program Supervisor/ Language Editor
RUBY M. JIMENEZ, PhD., Education Program Supervisor, LRMDS

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