INTRODUCTION TO

FINANCIAL MANAGEMENT
NOREEN VERA F, TUIBEO, RPH
PH-PHR 123
Learning Objectives
1. Explain the goal of financial management and its relevance to the
pharmacy profession.
2. Discuss the importance of financial management to
pharmacists.
3. Discuss the limitations of financial management.
4. Define accounting and bookkeeping.
5. Differentiate the types of accounting information.
6. List and briefly describe the four most common financial
statements.
7. Identify the advantages and disadvantages of the 3 types of
business organizations.
Financial Management
 Ensures the financial viability of the organization by making
sound business decisions and actions.

 Involves the integration of the manager’s knowledge in

accounting, economics, statistics, and general business
management in running the organization.
Financial Management

1. How much inventory to carry

2. Which sources of supply to use
3. How to set prices
4. Rent or buy an equipment
5. To avail of discount or buy in cash
Goal of Financial Management

 Use resources efficiently to maximize the

value and effectiveness of organizations

 Financial management is necessary and appropriate

for both non-profit and profit making firms.
 Bothhave limited resources and both face
competition
Limitations of Financial Management
 Not all decisions made are financial in nature.

 Financial statements do not contain all the information

needed by the business. Some things are not measured in
monetary terms.
RPh as Financial Managers

1. Owner of drugstores
2. Director / Chief of hospital pharmacies
3. Manager of chain drugstores
4. Clinical coordinator
5. Sales district manager
6. Plant manager
Accounting
 language of business
 process that analyzes, records, classifies, summarizes,
reports, and interprets financial information to decision
makers in a timely fashion.
Functions of Accounting
 Primary function
 To provide financial reports to various end-users for economic
decision making
 Audit function
 To test the reliability of the financial reports, trace fraudulent
transactions, and locate and rectify accounting errors
Bookkeeping
 recording (record keeping) function of the accounting
process.
Bookkeeper vs Accountant
 A bookkeeper enters accounting information in the company’s
books.

 An accountant takes the information and prepares the

financial statements that are used to analyze the company’s
financial position
Types of Accounting Information
 Financial Accounting
 financial
resources, obligations, and activities of an economic entity
 aggregation of accounting information into financial statements

 Management Accounting
 assists management in operating the business
 refers to the internal processes used to account for business
transactions
Types of Accounting Information
 Tax Accounting
 entries
or reports are created based on the rules set by the relevant
government tax authorities

 Cost Accounting
 assist the management in cost control and decision-making
Users of Accounting Information
 Owners
 Management
 Creditors
 Government
 Prospective investors
 Employees
Users of Accounting Information
Internal Users
 Board of Directors
 Chief Executive
Officer
 Chief Financial Officer
 Vice Presidents
 Business Unit Mgrs.
 Plant Managers
 Store Managers
 Line Supervisors
External Users
 Creditors
 Labor Unions
 Government agencies
 Suppliers
 Customers
 Trade Associations
 General Public
FINANCIAL STATEMENTS
Balance Sheet
 Aka Statement of Financial Position

 indicates what a business owns and what it owes at one point

in time

 Conveys information about the business entity’s liquidity,

solvency, stability, capital structure and financial flexibility.
Income Statement
 Aka Profit and Loss Statement

 indicates whether the business made a profit or suffered a

loss over some period of time

 Shows the operating performance of the business entity for a

given period

 Provides information about the business entity’s profitability

Cash Flow Statement
 indicates where the business is getting its cash and how it is
spending it

 explains the changes of cash and cash equivalents during an

accounting period
Statement of Capital
 Aka Statement of Retained Earnings or Statement of Changes
in Equity

 indicates how the owner’s investment in the business has

changed over some period of time.

 Shows the movements in the various elements of the owner’s

equity or capital for a certain period
TYPES OF BUSINESS ORGANIZATIONS
Sole Proprietorship

 An unincorporated business owned by a single

individual
 The law does not distinguish between the owner and
the business
Sole Proprietorship
Advantages Disadvantages
Low start-up cost Unlimited liability
Great freedom from regulation Difficult to raise capital
All profits go to the owner Limited to owner’s
Owner has complete control knowledge
Lack of continuity
Profits are taxed at
personal rate
Partnership

 An unincorporated business owned by more than

one individual
 The law does not distinguish between the business
and the owners/partners
Partnership
Advantages Disadvantages
Ease of formation Unlimited liability
Broader management skills Possible disagreements
Limited regulations Divided authority
More capital resources Difficult to find partners
Partners are liable for each
other
Corporation

 A business which is an individual in the eyes of the

law
 The law views the business as a separate entity
from the owners
Corporation
Advantages Disadvantages
Limited liability of Higher start-up costs and
shareholders greater formalities
Possible lower taxation rate Requires annual
Can sue/be sued in the maintenance from
corporate name accountants and lawyers
More prestige Losses cannot offset
Continuity of business personal income
TYPES OF BUSINESS OPERATIONS
 Service business
 provides services, instead of product, to its customers

 Merchandizing business
 sells products but don’t make the products they sell
 buy or purchase from other business

 Manufacturing business
 converts basic inputs, such as materials, labor and overhead, into
finished products which are sold to customers