SEPT 3 ‘19

FINANCE
Definition - art and science of managing money
Areas and opportunities in Finance
- Financial Services
- Managerial Services
Goal of Finance: (must be higher than profit maximization)
- Maximizing FIrm Value (perceived value of the company)
- Profit Maximization

Analysis of Financial Statements and Financial Planning - accountants do operations that will have to
be summarized into a financial statements and this must only deal with numbers. Financial planning
means we know the results of x operations… How do you look forward is financial planning

Investment Decision - where do you get / invest the money? Do you invest your money in the stock
market? In lotto? In other profitable business? Where do you put the money to make the company larger
/ grow?

Financing Decision

THE FINANCE GROUP

- CONTROLLER = documentation of where the money goes is the responsibility of this group
- Cost Accounting
- Tax Manager = accountant under the controller will look for alternative to reduce tax
within the company in favor w/ the government (Tax avoidance - allowed in the
government | Tax evasion - is a crime and not allowed in the government).
- Financial accounting = the one who creates documents such as financial statement

- TREASURER = the treasurer group looks where to invest the money, manages and sources the
company’s funds, and is responsible to look/source for funds whenever the company is in debt
or in negative value
- Cash Manager
- Foreign Exchange Manager = is the currency rate appears favorable to the company,
then they get to export. If not, then wait. (P.s. if the company is local, FEM is not required)
- Credit manager - responsible for credits of the company and responsible to collect the
credits in company from each customer within a given time.
 - Fund Raising Manager (from large companies) - if the company needs large amount for
funding, the manager will look for options to raise the funds (via borrowing or selling of
shares of stocks).

SEPT 5 ‘19

THE BUSINESS ORGANIZATION

- Sole Proprietorship = you must first register (as non-VAT or VAT company) to DTI, get approval
from BIR, and secure a mayor’s permit.
i.e. If your VAT registered company and your Sales = P1.12M, VAT = P120K [12% of Sales], then Net
Sales = P1.0M
P.s. Mayor’s permit requirements are: Brgy clearance, Fire clearance, Bldg. permit
P.s. Sole proprietor is not pursued if the owner’s dead,.
- Raising Capital
- Formation
- Advantages and Disadvantages

- Partnership - 2 or more individuals or business entity. They get to combine their capital.
- Has 2 types
- General Partnership - 2 individuals can act as the whole partnership on the rest’s
behalf (up to his own property)
- Limited Partnership - same as general but liable up to his contribution only (not
to his property)
- Must register to SEC (not to the DTI) & BIR and consultancy for legalities (if there’s no
product)
- Must register (if has a selling product) and secure a mayor’s permit
- Sometimes they (i.e BIR) don’t get to monitor partnership because they don’t oversee or
something???
- Larger than sole proprietorship
- One must not leave partnership because they’ll get dissolved esp. if general partnership
- VAT is constant (always 30%)

- Corporation - it is a juridical (by law, it can be created) entity and can act on its own like sole
proprietorship
- Can make own decision
- Decide from the business
- Can Sue a party
 - Can be sued by another entity, the corporation is liable up to its contribution/capital
- x is your percentage share of the corporation
- Has a minimum of 5 entities/individuals that should be able to form a corporation
- I.e. The value of the corporation is i.e. P1.2M, the 5 contributors must be able to hold
shares or have 1 share of stock, otherwise you’re not a member of the stockholder.
- Documentation requirements: the guiding laws, the purpose of corp., who are the
owners, that is all under article incorporation.
- In taxation, 30% of its income
- If may namatay sa corp, the corp will cease to exist
- Liability up to the capitalization of the corp.
- Mas maraming stockholders, mas mahirap gumawa ng corporate decisions kasi need pa
ng approval ng i.e. board of directors

FUNCTIONAL AREAS OF THE BUSINESS ORGANIZATION

- Sales and Marketing
- Di ko makita nakasulat sa board
- Production
- Di ko makita nakasulat sa board
- Administration
- Di ko makita nakasulat sa board
- Finance
- Di ko makita nakasulat sa board
- Information Technology/Systems - must come up with systems to be fully equipped with
communication systems.
- Under IT, there’s 2: hardware and software. The head is called: system admin and
handles hardware usually. Under the system admin: there’s programmers, Systems
analysts, Encoders, etc.
 SEPT 10 ‘19
BASIC FINANCIAL STATEMENTS
Balance Sheet
- In a balance sheet, you have: what you owned (assets), what you borrowed (liabilities), what is
left (capital)? i.e. Assets - Liabilities = Capital
- Balance sheet have 2 side,
- both sides must be equal (hence called balance sheet)
- “Madali lang naman, mahirap lang sa recording (kasi baka magkamali) tsaka sa analyzing.”
- The ending point of 2018 is the starting point of 2019

Income Statement
- If sales is greater than the cost and expenses, you gain profit
- Measures the amount of profits generated in a period
- Can be expressed as : Revenues (or Sales) - Expenses = Profits (or if negative, Loss)

Loss Statement
- If cost and expenses are greater than sales, you lose profit.

Sales / Revenues
- When we sell an item, there’s a commission. Whenever you sell, there should be corresponding
cost.
- Is inflow
- Minus cost of Goods sold = Gross Profit

Cost
- Is outflow

Expense
- Amount you incurred but not necessarily attributed to the cost. You sell the product and match
it with the same cost.
- Is also outflow
- Costs of goods sold, interest expenses, SGI

BASIC FINANCIAL STATEMENTS

Following four types of financial statements are mandated by the accounting and financial regulatory
authorities:
1. Income Statement
 - provides the following information for a specific period of time
- i.e. from Jan 1 - Dec 31, 6 months, 1 month, 1 day, etc.
- Revenue (inflow usually for services, Sales for product), Expenses, Proft.

2. Balance Sheet
- Provides a snapshot of the following on a specific date only
- I.e. as of December 31, 2010
- Assets (value of that the firm owns)
- Liabilities (value of firm’s debts)
- Shareholder’s equity (the money invested by the company owners)
3. Cash Flow Statement - as long as you know the income statement, these 2 will follow.
4. Statement of shareholder’s equity

WHY STUDY FINANCIAL STATEMENTS?

- Analyzing a firm’s financial statement can help managers carry out three important tasks:
1. Assess current performance through financial statement analysis
2. Monitor and control operations and
3. Forecast future performance
 SEPT 12 ‘19

CALCULATING GROSS PROFIT:

Sales [Quantity * Price per Unit]

- Cost of Goods Sold [Quantity * Cost per Unit]
Gross Profit [Sales - CGS]

i.e On january 1, you only have cash, then you bought 2 units in inventory and sold them. Your
beginning inventory as of January 1 is supposed to be 0. Eventually, you bought, you sold, you bought,
you sold, etc. You add up all your buying gear - that’s what you call Purchases. You bought 4 units but
only sold 3. So, 3 out of 4 was sold. In the ending inventory (Dec 31), you have 1 unit left in your inventory.

Beginning Inventory: Php 0.00

Purchases: 4pcs * Php 200.00

Goods Available for Sale: = Php 800.00

- Ending Inventory: 1pc * Php 200.00
Cost of Goods Sold: Php 600.00 [Php800 - Php200]

Sales [3 * Php 300.00] = Php 900.00

- Cost of Goods Sold [3 * Php 200.00] = Php 600.00
Gross Profit [P900 - P600] = Php 300.00

- Operating Expenses -
Selling Php 100.00
Admin Php 100.00
- Depreciation Exp Php 50.00 (assumed, given)
Operating Income = Php 50.00 [P300 - P250]
- Interest Php 0.00
Earning Before Tax = Php 50.00
- Tax (30%) Php 15.00
Net Income After Tax = Php 35.00 [P50 - P15]

DEPRECIATION
 - is the systematic charging of a portion of the costs of fixed assets against annual revenues over
time.
- “is used for reducing tax that is allowed by the BIR , but it is completely optional”
- (For tax purposes) is determined by using the modified accelerated cost recovery

Cost ÷ Life = Depreciation Value i.e. Cost (Php 1M) ÷ Life (5 years) = Php 200K / year

ASSETS (Left side of the Balance Sheet)

Current Assets
- Cash
- Accounts Receivable
- Inventory
= Total Current Assets

Gross Plant & Equipment (Fixed Assets)

- Land (Non-depreciable)
- Building (Subject to its depreciation i.e. P100M - (P100M ÷ 20years = Php 5M/year))
= Net Plant & Equipment
= TOTAL ASSETS