ESE144-0 WATER PURIFICATION PROCESSES DESIGN 3Q1819

CHAPTER 1: Introduction to Financial Management  It may allow you to work in other countries or at
least travel on a regular basis.
Four Basic Areas of Finance:
 Need to be familiar with exchange rates and
a. Corporate finance or business finance
political risk.
b. Investments
 Need to understand the customs of other
c. Financial institutions countries and you would benefit from fluency in
a foreign language.
d. International finance

Why study finance?

a. Investments
 Marketing
 Working with financial assets such as shares and
bonds ◦ Budgets, marketing research, marketing
financial products
 Value of financial assets, risk versus return and
asset allocation  Accounting

 Job opportunities ◦ Dual accounting and finance function,

preparation of financial statements
◦ Stockbroker
 Management
◦ Financial advisor
◦ Strategic thinking, job performance and
◦ Portfolio manager profitability
◦ Security analyst  Personal finance

◦ Budgeting, retirement planning,

b. Financial institutions university planning, day-to-day cash
flow management
 Companies that specialise in financial matters

◦ Banks─commercial and investment,

credit unions, savings and loans Business finance

◦ Insurance companies  Some important questions that are answered

using finance:
◦ Brokerage firms
◦ What long-term investments should the
 Job opportunities firm take on?

◦ Where will we get the long-term

c. International finance financing to pay for the investment?

 This is an area of specialisation within one of the ◦ How will we manage the everyday
areas discussed so far. financial activities of the firm?

 Involves international aspects of corporate

finance or investments or financial institutions.

DR. JOSEPH BERLIN JUANZON 1

ESE144-0 WATER PURIFICATION PROCESSES DESIGN 3Q1819
Financial Manager ◦ How do we manage the day-to-day
finances of the firm?
 Financial managers try to answer some or all of
these questions.

 The top financial manager within a firm is usually Forms of business organisations
the chief financial officer (CFO).
 Three major forms in Philippines
◦ Treasurer: oversees cash management,
1. Sole proprietorship
credit management, capital expenditure
and financial planning 2. Partnership
◦ Accountant: oversees taxes, cost  General
accounting, financial accounting and
data processing  Limited

3. Corporation

A simplified organisational chart

Sole proprietorship

Advantages:

• Easiest to start

• Least regulated

• Single owner keeps all the profits

• Taxed once as personal income

Disadvantages:

• Limited to life of owner

• Equity capital limited to owner’s personal

wealth

• Unlimited liability

• Difficult to sell ownership interest

Financial management decisions

 Capital budgeting
Partnership
◦ What long-term investments or projects
Advantages:
should the business take on?
• Two or more owners
 Capital structure
• More capital available
◦ How should we pay for our assets?
• Relatively easy to start
◦ Should we use debt or equity?
• Income taxed once as personal income
 Working capital management

DR. JOSEPH BERLIN JUANZON 2

ESE144-0 WATER PURIFICATION PROCESSES DESIGN 3Q1819
CHAPTER 2: SOURCES OF CAPITAL Family and Friends

Sources of Capital:  Likely to invest due to relationship with

entrepreneur
a. Equity (Personal Funds)
 Advantage – easy to obtain money; more
b. Debt Financing (Short-term Borrowing) patient than other investors
 Disadvantage – direct input into operations of
c. Long term loans/Amortization
venture
 A formal agreement must include:
o Amount of money involved
1. Equity Financing
o Terms of money
 Obtaining funds for company in exchange for o Right and responsibility of investor
ownership o Steps to be taken in case business fails
 Does not require collateral
 Offers investors some form of ownership
position (corporation is constructed later on) Internal/External Funds

 Internally general funds are most frequently

employed, sources include:
2. Debt Financing o Check phone
 Obtaining borrowed funds for the company  Short-term internal sources of funds:
 Asset-based financing; requires some asset to be o Check phone
used as a collateral  Criteria
 Borrowed funds plus interest need to be paid
back

5Cs:
Factors affecting it:
 Character
a. Availability of funds  Capacity
b. Assets of the venture
 Collateral
c. Prevailing interest rates
 Capital
d. All financing requires some level of equity;
 Conditions
amount will vary by nature and size of venture

a. Personal Funds

 Least expensive funds in terms of cost and

control
 Essential in attracting outside funding
 Typical sources of personal funds:
o Savings
o Life insurances
o Mortgage or a house or car

DR. JOSEPH BERLIN JUANZON 3