An Overview of Financial

Management
Set of Activities
Concept Discussion:

1. On Goal Maximization, discuss:

a) What is meant by goal maximization of the shareholders’ wealth?
b) What are the drawbacks in considering that the utmost goal of a business entity is to yield the
highest profit possible for the firm?
2. What are the functions of financial management?
3. What are the financial manager’s responsibilities?
4. On the forms of business organizations, thoroughly discuss:
a) Compare and contrast the different forms of business organizations.

LESSON Financial Statements Based on Philippine

Accounting Standards (PAS) #1

Concept Discussion:
Briefly discuss the following:
1. The components of the financial statements
2. Classification of current and noncurrent assets
3. Components of the shareholders’ equity
4. Comprehensive income
5. Statement of cash flows
Concept Application:
Problem 1:
From the account balances given below
For Surf Corp. you are tasked to prepare the statement of financial position. Observe proper classifications.
In thousand pesos.
Accounts receivable P400
Advances to officers not currently collectible 100
Sinking fund 400
Building 5000
Long-term refundable deposit 50
Cash and cash equivalent 500
Cash surrender value 60
Equipment 1000
Lease rights 100
Accrued interest income 10
Inventories 1300
 Land 1500
Land held for speculation 500
Notes receivable 250
Computer software 3250
Prepaid expenses 70
Trading securities 280
Unearned net income 40
Retained earnings (deficit) (1800)
Share premium-preference shares 500
Premium on bonds payable 1000
Preference share capital 2000
Share premium – ordinary 200
Notes payable 300
SSS payable 10
Accounts payable 400
Accrued salaries 100
Accumulated depreciation – building 2000
Accumulated depreciation – equipment 200
Allowance for doubtful accounts 20
Bonds payable 5000
Dividends payable 120
Ordinary share capital 5000
Withholding tax payable 30
Preference share redemption fund 350

Problem 2:
From the 2015 account balances given below for Karla Corporation you are tasked to prepare the income
statement (functional approach). Observe proper classifications.

Freight – in 1000000
Income tax 500000
Purchases 10500000
Purchase returns 150000
Purchase allowances 150000
Rent income 500000
Freight – out 350000
Salesmen’s commission 1300000
Depreciation expense – store equipment 250,000
Inventory (Jan. 1) 2000000
Inventory (Dec. 31) 3000000
Sales 15700000
Sales returns 250000
Sales allowances 30000
Sales discounts 20000
Officers’ salaries 1000000
Depreciation expense – office equipment 600000
Purchase discounts 200000
Dividend income 300000
Loss on sale of equipment 100000
Loss on sale of investment 100000
 LESSON Financial Statements Analyses and Their
Implications to Management

Concept Discussion:
1. What are the objectives of financial statement analysis?
2. Compare and contrast horizontal analysis and vertical analysis in terms of procedures, and their uses.
Concept Application:
TREN Corporation
Comparative Statements of Financial Position
December 31, 2019
(in thousand pesos)
INCREASE (DECREASE)
2019 2018 AMOUNT PERCENT
Assets
Current Assets
Cash & Cash Equivalent 24,890 2,120
Held for Trading 10,000
Trade & Other Receivables 16,000 6,000
Inventory 8,960 10,600
Total Current Assets 59,850 18,720

Non-Current Assets
Property, plant & Equipment 150,000 161,280
Investment in Equity Securities 16,000 20,000
Total Non-current Asset 166,000 181,280
Total Assets 225,850 200,000

Liabilities and Shareholders’ Equity

Current Liabilities
Trade & other Payables 8,400 3,350
Unearned Revenues 10,600 11,650
Notes Payable – current 900 600
Total current liabilities 19,000 15,600
Non – current liabilities
Notes payable – non – current 73,550 100,000
Total Liabilities 93,450 115,600
Shareholders’ Equity
Ordinary Shares, P100 par 80,000 60,000
Premium on Ordinary Shares 16,000 10,000
Total paid – in – capital 96,000 70,000

Retained Earnings 36,400 14,400

Total Shareholders’ Equity 132,400 84,400
Total Liabilities & Shareholders’ Equity 225,800 200,000
 TREN Corporation
Comparative Income Statements
For the years ended December 31, 2019 & 2018
(in thousand pesos)
INCREASE (DECREASE)
2019 2018 AMOUNT PRECENT
Sales 480,000 400,000
Less Cost of goods sold 364,000 280,000
Gross income 116,000 120,000
Add: other income 15,000 9,600
Total income 131,000 129,600
Less: other expenses 12,400
Finance costs (interest) 14,400 19,000
Total expenses 26,800 19,000
Net income before taxes 104,200 110,600
Less: income Tax 32,334 35,392
Net income after taxes 71,866 75,208

Required: Prepare a horizontal and vertical analysis of TREN Corporation. Below your computations,
present a concise analysis, interpretation and conclusion about the result of your computations.

LESSON Financial Ratio Analyses and Their Implications to

Management

Concept Discussion:

Thoroughly discuss the following:

1. Coverage of FSA ratios in terms of Liquidity, asset utilization, debt utilization and profitability.
2. The significance of the following:
a) Liquidity;
b) asset utilization;
c) debt utilization and
d) profitability.

Concept Application:
TREN Corporation
Comparative Statements of Financial Position
December 31, 2019
(in thousand pesos)
INCREASE (DECREASE)
2019 2018 AMOUNT PERCENT
Assets
Current Assets
Cash & Cash Equivalent 24,890 2,120
Held for Trading 10,000
Trade & Other Receivables 16,000 6,000
Inventory 8,960 10,600
 Total Current Assets 59,850 18,720

Non-Current Assets
Property, plant & Equipment 150,000 161,280
Investment in Equity Securities 16,000 20,000
Total Non-current Asset 166,000 181,280
Total Assets 225,850 200,000

Liabilities and Shareholders’ Equity

Current Liabilities
Trade & other Payables 8,400 3,350
Unearned Revenues 10,600 11,650
Notes Payable – current 900 600
Total current liabilities 19,000 15,600
Non – current liabilities
Notes payable – non – current 73,550 100,000
Total Liabilities 93,450 115,600
Shareholders’ Equity
Ordinary Shares, P100 par 80,000 60,000
Premium on Ordinary Shares 16,000 10,000
Total paid – in – capital 96,000 70,000

Retained Earnings 36,400 14,400

Total Shareholders’ Equity 132,400 84,400
Total Liabilities & Shareholders’ Equity 225,800 200,000

TREN Corporation
Comparative Income Statements
For the years ended December 31, 2019 & 2018
(in thousand pesos)
INCREASE (DECREASE)
2019 2018 AMOUNT PRECENT
Sales 480,000 400,000
Less Cost of goods sold 364,000 280,000
Gross income 116,000 120,000
Add: other income 15,000 9,600
Total income 131,000 129,600
Less: other expenses 12,400
Finance costs (interest) 14,400 19,000
Total expenses 26,800 19,000
Net income before taxes 104,200 110,600
Less: income Tax 32,334 35,392
Net income after taxes 71,866 75,208

Requirements:
a) Compute the ratios that measure, liquidity, asset utilization, debt utilization and profitability.
b) Analyze, interpret, and draw conclusions based on the results of your computations.
 LESSON Time Value of Money Analysis

Concept Application:
1. Assume that Tria Corporation would like to know the amount of investment it will make in order to
yield an amount of P100,000 which it will receive three years from now. Assume that the discount rate
for this type of investment is 25%.
2. Assume that on January 1, 2020 Donjon invested P100,000 in a financing company. Donjon would
like to find out what would be the worth of his P100,000 after 5 years with an interest rate pegged at
8%.

LESSON Fund Management

Learning Activities

Instructions: Discuss the following:

1. What are the importance of cash and cash equivalents?