NAME:

__________________________________________________________ SECTION: 12 - ____________________

COLLEGE OF ST. JOHN - ROXAS

GRADE 12 - ABM/ SY 2021-2022/1st SEMESTER/ 1st QUARTER
BFIN 101: BUSINESS FINANCE
WEEK 1 - August 16 -20, 2021

I. INTRODUCTION

Welcome to the course on Business Finance. I wonder how many of you know why this subject is
included in your curriculum? What learnings in Business Finance do you think you will be able to
use in your future course in Accountancy, in Business or in Management? More importantly, how is
Business Finance connected to your daily lives / to our lives?

Based on your own observation, give possible reasons why Filipinos fail to manage their Cinances
and explain why. What are the possible ways of avoiding these?

Based on three articles (Kristel Silang, Jan. 14, 2020 - https://www.moneymax.ph/personal-3inance/

articles/8-major-reasonos-3ilipinos-fail-manage-3inances; Lifestyle, Money Management, August 26,
2019, — https://www.imoneyph/articles/habits-to-get-rid-of-3inancial-freedom/, and Smart Juan,
April 5, 2018, — https://smartjuan.com/lifestyle/10-reasons-why-3ilipinos-have-no-savings/) here
are some of the major reasons why Filipinos fail to manage their Cinances:
1. Lack of Financial Literacy
2. Lack of Trust on Financial professionals
3. Lack of prioritization in allocation of expenditures
4. Lack of openness in discussing money matters with their partners or family
5. Easy access in ways of borrowing cash leading to bad debts
6. Lack of initiative in taking the opportunity of using good debt to prosper in life
7. Having the "Come-what-may" mentality or "Bahala na" attitude
8. Easily tempted to "spending spree" right after pay leading to "Petsa de Peligro"
9. Succumbing to peer pressure and becoming victims of lifestyle inClation.

ACTIVITY #1: PLEASE ANSWER BRIEFLY. EMAIL YOUR ANSWERS ON OR BEFORE AUGUST 20, 2021.
1. Do you agree with the above observations on the Financial Habits of Filipinos?
2. Do you know of other possible reasons why Filipinos fail to manage their Cinances?
3. How do you think these "bad habits" be resolved?

II. BUSINESS FINANCE: AN OVERVIEW

Let's now go to business. Why do you need to manage your Cinances? Here are possible
reasons:

1. Understand how your business is performing.

2. Make informed decisions about your spending.
3. Make sure you have enough money in the bank to pay the people you need to, when you need to.
4. Stay on top of your tax payments.
5. Provide accurate information to get investment or a business loan.
6. Set and achieve key business milestones — like expanding into new areas, or hiring someone new.
7. You have to meet contingencies.
8. You have to promote sales.
9. You have to avail of business opportunities.

At the end of this course, therefore, you are expected to be able to:
1. DeCine Finance
2. Describe who are responsible for Cinancial management within an organization.
3. Explain the major role of Cinancial management and the different individuals involved.
4. Describe the primary activities of the Cinancial manager
5. Describe how the Cinancial manager helps in achieving the goal of the organization.
6. Describe the role of Cinancial institutions and markets
7. Distinguish a Cinancial institution from Cinancial instrument and Cinancial market

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8. Enumerate the varied Cinancial institutions and their corresponding services.

9. Compare and contrast the varied Cinancial instruments
10. Explain the Clow of funds within an organization — through and from the enterprise — and the role of
the Cinancial manager.

Let's deCine FINANCE. It can be deCined as the science and art of managing money. (Gitman and
Zutter, 2012.) It is concerned with the processes, institutions, I-markets and instruments involved in
the transfer of money between individuals, businesses and governments. (http://banko3info.com).

The term refers to two main activities:

1. The actual process of attracting money
2. The management of funds

Gurus in Business Finance such as B.O. Wheeler deCines Business Finance as "that activates which
is concerned with the acquisition and conservation of capital funds in meeting the 3inancial need and
overall objective of business enterprise."

Dr. R. E. Gloss and Dr. H. Baker deCines Business Finance as "that which is concerned with the
sources of funds available to enterprise of all sizes and the proper use of money or credit obtained from
s u c h s o u r c e . " ( h t t p : / / b a n k o 3 i n f o . c o m / w p - c o n t e n t / u p l o a d s / 2 0 1 4 / 0 1 /
what_is_the_de3inition_of_3inance.gif)

As you must have surmised from your readings or lessons on Accounting or Business and/or
Management, business needs MONEY to operate. Funds are the lifeblood of any business. And to
make money, it must Cirst spend money. (https://opentextbc.ca/businessopenstax/chapter/the-role-
of-3inance-and-the-3inancial-manager/).

How so? Business needs CAPITAL to purchase supplies; incur costs on inventory, equipment and
facilities; and pay wages and salaries to employees; pay lease , etc. And for the business to succeed,
it must have good Cinancial management. It must be able to use its resources wisely and
appropriately and in turn, acquire more resources for the company 's operational expenses and
further investments.

Financial Management is both an art and a science of managing a Cirm's money so that it can meet
its goals. The Cirm must have sound Cinancial planning to be able to raise more funds and invest on,
if not high-yielding, at the very least positive-yielding Cinancial ventures.

Business Finance is the study of money -- study of Cinancing and investment decisions made from
theory to practice. However, there is a need for managers or businessmen to be familiar with
accounting method, investing strategies and debt management.

Such is the role of investment agencies or intermediaries. Its role is to raise money from members
of the public and from other investors and to invest. Possible sources of funds are the following:
owners of business and shareholders; long-term lenders; short-term Cinancing by banks
(overdrafts); other Cinancial institutions; other businesses on credit (trade payable /trade
creditors)

Part of business is investing. An entity invests in either REAL ASSETS such as land, buildings, plant,
inventories (stocks); and/or in FINANCIAL ASSETS such making loans or buying shares. People
mange these investments; thus, it is crucial that right decisions are made as to the types and
quantity of Cinance to raise and choice of investments to be made.

Since the 1960s, numerous narrative accounts of decisions have been made -- theories that have
emerged, tried and tested. The study of theories on how these Cinancing and investment decisions
should be made must be applicable in the real business world. Majority of the accepted theories
that attempted to explain and predict actual outcomes in business Cinance were broadly successful
in their aim.

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Financing and investment decision-making draws from many disciplines -- from economics,
accounting, law, quantitative methods and even behavioral sciences. These are vital to the business.
This would mean either the success of the failure of the business. Such decisions often involve
Cinancial amounts that are very signiCicant to the business concerned. It is not easy to reverse so
much so that the business is typically committed in the long-term to a particular type of Cinances or
to a particular investment.

Business Finance relies heavily on sound theory. It is an intensely practical subject where real-
world decisions are made. It basically has two functions: 1). Analysis and 2) Decision-making. It
involves making decisions about the future knowing that the past cannot be altered. The Finance
Manager must be able to predict with conCidence with the limited range of possibilities supported
by ascribed statistical probabilities.

You must remember that you can NEVER be completely certain of the future. There is always a RISK
involved which MUST be considered explicitly in all cases since this is an important factor in all
Cinancial decision-making.

According to McLaney, E. J. (Business Finance: Theory and Practice 8th ed, Pearson Education Ltd.,
2009), "in business Cinance, as in other aspects of life, risk and return tend to be related. Intuitively
we expect returns to relate to risk in something like the way shown in the Figure 1.1. below. In
investment, for example, people require a minimum rate to induce them to invest at all, but they
require an increased rate of return -- the addition of a risk premium--to compensate them for taking
risks."

Before we go any further, let us distinguish Accounting from Business Finance. The table below
shows you the comparison between the two disciplines.

ACCOUNTING BUSINESS FINANCE

Concentrates on financial record keeping,
production of periodic reports, statements and
analyses, dissemination of information to
stakeholders
Involved with the quality, relevance and timeliness
of its information output
Concerned with the past
Tends to have an income focus
Specialist involved: Accountant
Focuses on making decisions and carrying out
analysis based on information presented by
accounting
Make decisions involving finance
More interested in the present and the future
Tends to have a cash flow focus
Specialist involved: Financial Manager

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This table shows you the relationship between Business Finance and Accounting. The information
presented by Accounting after gathering its historical data, is used by Business Finance in making
future economic decisions.

III. FINANCIAL MANAGEMENT AND FINANCIAL MANAGER

The roles of the Financial Manager are the following:

1. Endeavors to reduce the cost of Cinance
2. Ensures sufCicient availability of funds
3. Deals with the planning, organizing and controlling of Cinancial activities like the
procurement and utilization of funds
4. Ensures adequate returns of shareholders
5. Ensures optimum fund utilization
6. Ensures safety of investments
7. Plan a sound capital structure so that balance between debt to equity capital will
be maintained.

The key activities of the Cinancial manager can be summed up into three: (https://opentextbc.ca/
businessopenstax/chapter/the-role-of-3inance-and-the-3inancial-manager/)

1. Financial planning/ProCit Planning - preparing the Cinancial plan, which projects revenues,
expenditures, and Cinancing needs over a given period. This is important for the survival and
sustenance of any organization.

2. Investment/Allocation of funds (spending money) and Understanding Capital Markets - investing

the Cirm's funds in projects and securities that provide high returns in relation to their risks; able to
realize the calculation of the risk involved if ever a decision is arrived at in trading of shares and
other securities.

3. Financing/Raising Funds (raising money) — obtaining funding for the Cirm's operations and
investments and seeking the best balance between debt (borrowed funds) and equity (funds raised
through the sale of ownership in the business).

When we talk about Business Finance, we are talking about Financial Management at the same time.
What is FINANCIAL MANAGEMENT? According to Guthmann and Dougall - "it is the activity
concerned with planning, raising, controlling and administering of funds used in the
business," (https://shodhganga.inClibnet.ac.in/bitstream/10603/119549/8/08_chapter-iii.pdf). J.
F. Brandley deCined it as "that area of business management devoted to a judicious use of capital
and careful selection of the source of capital in order to enable a spending unit to move in the
d i r e c t i o n o f r e a c h i n g t h e g o a l s ," ( h t t p s : / / w w w. t h e s o c i a l c o m m e n t . c o m / b l o g /
Financial%20Management?). Joseph Massie deCined it as " the operational activity of a business
that is responsible for obtaining and effectively utilizing the funds necessary for efCicient
operations." (http://thebestteacher.yolasite.com/Cinancial-management.php).
What is the scope of Financial Management? (Fig. 1.2)

Fig. 1.2 : THE SCOPE OF FINANCIAL MANAGEMENT

Source: https://www.toppr.com/guides/business-environment

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As you can see in Fig. 1.2 above, there are 3 areas involved in Financial Management and these are:
1). Financing Decision; 2). Investment Decision; and 3). Dividend Decision.

FINANCING DECISIONS:
There are two types of Cinancing decisions (Fig. 1.3) based on the two kinds of Cinance: 1). Financial
Planning Decision and 2) Capital Structure Decision.

Fig. 1.3

1). Financial Planning Decision

• This relates to estimating the sources and applications of funds.
• It involves pre-estimating Cinancial needs of an organization to ensure the availability of
adequate Cinance.
• Its primary objective is to plan and ensure that the funds are available as and when required.

2). Capital Structure Decisions

• It involves identifying sources of funds.
• It involves decision with respect to choosing external sources like issuing shares, bonds,
borrowing from banks, or internal sources like retained earnings for raising funds.

INVESTMENT DECISIONS
Under investment decisions, there are two types of investments: 1) Long-term investment and 2)
Short-term investment.

Investment decisions:
•Involve the decision on how much to invest based on the available Cinance and type of
investment whether on a long-term or short-term basis.
•Are decisions taken by valuing different projects where expected the return and risk are
considered.

LONG-TERM INVESTMENT DECISIONS/CAPITAL BUDGETING

In here, funds are committed for a long period of time like Cixed assets. Decisions made are
usually IRREVERSIBLE. It pertains to investing in a building and /or land, acquiring new
plants / machinery or replacing the old ones, etc.

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Decisions made here determine the Cinancial pursuits and performance of a business. It
considers the overall assets and costs, expected future return, and risks of expected return
and cost of capital.

The size of the fund is generally very large and is usually invested in immovable property.
Funds are used to procure land, machineries and equipment, preparing ofCice building and
residential building.

NATURE OF THE FUND can either be in domestic or foreign currencies. The REPAYMENT
METHOD depends upon the contractual relationship between the lenders and the
borrowers. SufCicient SECURITY against the loan is required. Fixed assets of the business
are used in this regard.

When it comes to CLAIM ON INCOME, the creditors get Cirst priority over the income of the
borrowers. COST OF CAPITAL is generally less than on short-term Cinancing compared to
long-term Cinancing and the expected income is generally low. Shareholders can actively
participate in the management of the fund if the fund is raised through issuing shares. If
fund raised through the creditors, then shareholders can inCluence management indirectly.

SHORT-TERM INVESTMENT DECISIONS / WORKING CAPITAL MANAGEMENT

Funds are committed for a short period of time like current assets for a period of one or less
than a year. It involves decisions pertaining to the investment of funds in the inventory,
cash, bank deposits and other short-term investments. It directly affects the liquidity and
performance of the business.

The TIME element here is for a period of one year or less. Funds are used for procuring raw
materials either in cash or credit. Loans are usually made for a short period of time. The
PURPOSE of which is to meet the Working Capital requirements of the organization like
procuring raw materials, paying the wages, etc.

Generally, there is no SECURITY required based on relationships of the clients considered as

not too costly nor too risky. It is possible to have RECYCLING. If raw materials are bought
on credit, bill payable is created. If the bill is paid on time, creditors remain satisCied and
they sanction the loan again.

DIVIDEND DECISIONS

•These are related to the portion of proCits that will be distributed as dividend.
•Shareholders always demand a higher dividend, while the management would want to retain
proCits for business needs.
•Here is a complex managerial decision.
•Decisions on net proCits distribution are divided into"
1. Dividend for shareholders
2. Retained proCits

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Fig. 1.4

https://ordnur.com/academic-study/principles-of-Cinance/

The Cigure above illustrates the various functions of Business Finance. To sum up, managerial
functions include investment decisions, Cinancing decisions and dividend decisions. Under
investment decisions, it may involve short-term or long-term investment. Other incidental functions
of business Cinance include fund collection, reserve maintenance, information collection and even
preparing Cinancial statements.

IV. PRINCIPLES OF BUSINESS FINANCE.

The principles of Cinance act as a guideline for the investment and Cinancing decision. Everyone
should know these principles whether it is for individuals or for organizations.

I. PRINCIPLE OF RISK AND RETURN TRADE OFF

• the higher the risk, the higher the rates of return
• The lower the risk, the lower the rates of return
• There is a trade off between risk and return
• We compare the return with risk. We won't take on additional risk unless we expect to be
compensated with additional return.
• Investment choices have different amounts of risk and expected returns.
• The more risk an investment has, the higher its expected return will be. To ensure rates of
return investors need to measure risk and return by both direct measurement and relative
measurement.

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2. PRINCIPLE OF TIME VALUE OF MONEY

• " a dollar in hand today is worth more than a dollar to be received in the future because the
dollar in hand today can be invested to earn interest to yield more than a dollar in the future"
•Value of money is decreased when time passes. The value of P1 of the present time is more
than the value of P1 after some time or years.
• Before investing or taking funds, we have to think about the inClation rate of the economy and
the required rate of return must be more than the inClation rate so that return can compensate
for the loss incurred by the inClation.
• Because we can earn interest on money received today, it is better to receive money earlier
rather than late.

3. PRINCIPLE OF CASH FLOW

• This principle mainly discusses the cash inClow and outClow.
• More cash inClow in the earlier period is preferable than later cash Clow by the investors.
• This principle also follows the time value principle that's why it prefers earlier more
beneCits rather than later years beneCits.
• A Cinancial manager places importance on cash Clows rather than on proCit.
• CASH, NOT PROFIT, IS KING.
• Cash Clow and not accounting proCit, is used as our measurement tool.
• Cash Clows and not proCits, can actually be reinvested.

4. PRINCIPLE OF PROFITABILITY AND LIQUIDITY

• This principle is very important from the investor's perspective because the investor has
to ensure both proCitability and liquidity.
• Liquidity indicates the marketability of the investment, i.e., how much easy to get cash by
selling the investment.
• On the other hand, investors have to invest in a way that can ensure the maximization of
proCit with a moderate or lower level of risk.

5. DIVERSITY PRINCIPLE
•Money should not be invested in one project but rather investment should be diversiCied.
• This principle helps to minimize the risk by building an optimum portfolio.
•The idea of a portfolio is, never put all your eggs in the same basket because if it falls then all of
your eggs will break, so put eggs by separating in a different basket so that your risk can be
minimized.
•To ensure this principle investors have to invest in risk-free investment and some risky
investment so that ultimately risk can be lower. DiversiCication of investment
ensures minimization of risk.

6. HEDGING PRINCIPLE
• The current assets should be met up by current liabilities and long-term assets should be
met up by long-term liabilities.
• This principle indicates that we have to take a loan from appropriate sources. For short-term
fund requirement, we have to Cinance from short-term sources and for long-term fund
requirement, we have to manage funds from long-term sources.
•For ^ixed asset ^inancing is to be done from long-term sources.
•Having a basic understanding of Cinance and its principles, lead to effective Cinancial decisions.
There is a higher possibility of gaining Cinancially.

Some other foundational principles of Business Finance are :

1. PRINCIPLE OF INCREMENTAL CASH FLOW
- as with Principle of Cash Flow (#3), the incremental cash Clows are determined when
making Cinancial decision.
- ICF can be decipher by the formula:
-ICF = accepted projected cash Clows if the project is selected minus if the project is not
selected

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2. CURSE OF COMPETITIVE MARKETS

- As a rule, it is hard to Cind exceptionally proCitable projects
- If an industry is generating large proCits, new entrants are usually attracted. The
additional competition and added capacity can result in proCits being driven down to the
required rate of return
- Product differentiation, service and quality can separate products from competition.

Anecdote: In 1993, my friends and I established the Cirst Internet Café near Filamer College now
Filamer University. After 6 months, business was good and thriving. By the end of the year, a lot of
Internet Café s sprouted almost like one in every corner of the street. This is the typical example of
the Curse of Competitive Markets. New entrants come into play once the business proves to be
proCitable.

Do you know of other businesses with the same story to tell? How about the "Lechon
Manok" or "Liempo" kiosk seen in almost all major streets in the city? Why do you think
others thrive while others fold up in the midst of competition?
NOTE: Email me your answer on or before August 20, 2021.

3. EFFICIENT CAPITAL MARKETS

- The markets are quick and the prices are right.
- The values of all assets and securities at any instant in time fully reClect all available
information.

4. CONFLICTS OF INTEREST AND THE AGENCY PROBLEM

- Managers won't work for the owners unless it is in their best interest.
- Agency problem results from conClicts of interest between the manager/agent and the
stockholder/owners.
- Manager may make decisions that are not in line with the goal of maximization of
shareholder wealth.
- Agency problem arises from conClicts of interest between principal (owners) and agents
(managers) due to the separation of management and the ownership.
- Agency conClict is reduced through monitoring such as Annual Reports, Compensation
Schemes (Stock Options) and market mechanisms (Takeovers).

5. TAXES BIAS BUSINESS DECISIONS

- The cash Clows we consider are the after-tax incremental cash Clows to the Cirm as a whole.

6. ALL RISKS ARE NOT EQUAL

- Some risks can be diversiCied away and some cannot.
- The process of diversiCication can reduce risk, and as a result, measuring a project's or an
asset's risk is very difCicult.

7. ETHICAL BEHAVIOR
- There will always be ethical dilemmas in Finance.
- Ethical Behavior is doing the right thing but what is the right thing?
- Each person has his or her own set of values which forms the basis for personal judgments
about what is the right thing.
- Sound ethical standards are important for business and personal success. Unethical
decision can destroy shareholder wealth.

In Financial Management, the following are its primary objectives:

1. Attempt to reduce the cost of Cinance.
2. Ensure sufCicient availability of funds.
3. Deal with the planning, organizing, and controlling of Cinancial activities like the
procurement and utilization of funds.

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QUICK ASSESSMENT

Answer the following questions with TRUE or FALSE.

1. Purchase of Cixed assets is a day to day expense. __________

2. Business Cinance means money and credit employed in business Cirms. __________
3. Business Cinance deals only with investment of money. __________
4. Business Finance is concerned with estimation of funds, raising of funds and from different
sources and their investment in different types of activities. __________
5. Without adequate Cinance, business may run into difCiculties. ___________

NOTE: Answers are on page 19.

There are terms that you will come across in the course of discussion. We already have deCined
Finance. Now let us deCine Budgeting, Investments and Sources of Funds. More detailed discussion
on these terms will be at the latter part of the course.

BUDGETING is the act of estimating revenue and expenses over a period of time.

INVESTMENT is an asset obtained with the purpose of gaining proCit or provide higher price when
sold in the future. INVESTING is a process of making money grow and have a return. (De Guzman,
A., 2019)

SOURCES OF FUNDS are from retained earnings, debt capital or equity capital. Funding is an act of
contributing resources to Cinance a program, project or a need. It can either be initiated for short-
term or long-term purposes. (https://corporateCinanceinstitute.com/resources/knowledge/
Cinance/sources-of-funding/)

V. INDIVIDUALS INVOLVED IN FINANCIAL MANAGEMENT

1. Senior Leaders of an organization

a. They are responsible for all aspects of its Cinancial health.
b. They are the ones who. Understand the unit's Cinancial situation and do not allow
unintended deCicits to occur.
c. They are accountable for the resources entrusted to them that include the funds, facilities
and the recruitment of employees, even if the control and tasks have been delegated to their
staff, under command of responsibilities.

2. Unit Heads
a. They are responsible for internal Cinancial management and to develop budgeting, Cinancial
reporting and management practices.
b. They are encouraged to develop an oversight process that builds on best practices.
c.
VI. FINANCIAL INSTRUMENTS, FINANCIAL MARKETS AND FINANCIAL INSTITUTIONS

A. FINANCIAL INSTRUMENTS
These are like stocks and bonds that are recorded evidence of obligations on which
exchanges of resources are founded. The effective investment management of these Cinancial
instruments is one of the important aspects of the Cinancing activities of any organization.

B. FINANCIAL MARKETS
These are the mechanisms used to trade the Cinancial instruments.

C. FINANCIAL INSTITUTIONS
These are the ones that facilitate the transfer of resources among those investors who are
involved in buying and selling of Cinancial instruments.

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D. VARIOUS FINANCIAL INSTITUTIONS AND THEIR SERVICES

It is important to understand the difference between the types of institutions and their services to
identify which Cinancial institution is the most appropriate in serving a speciCic need. The major
categories of Cinancial institutions include central banks, commercial banks, credit cooperatives,
savings and loans associations, investment banks, investment companies, brokerage Cirms,
insurance companies and mortgage companies.

1. CENTRAL BANK
a. It is responsible for the oversight and management of all other banks
b. In the Philippines, it is BSP or Bangko Sentral ng Pilipinas (Central Bank of the Philippines).
c. Its primary objective is
i. to maintain the price stability conducive to a balanced and sustainable economic
growth;
ii. to promote and preserve the stability and the convertibility of the national currency
— the Philippine Peso
iii. To provide policy directions in the areas of money, banking and credit
iv. To supervise the operations of banks and to regulate non-bank Cinancial institutions
with quasi banking functions and conduct monetary policy and supervision and
regulation of Cinancial institutions.

2. COMMERCIAL BANKS
a. Work directly with businesses — often deposit, accounts, lending and Cinancial advice to any
business in different industries
b. Its products are CA (Checking Account); SA (Savings Account), CD (CertiCicate of Deposit),
personal and mortgage loans, credit cards and business banking accounts.
c. There are currently 43 universal and commercial banks, 57 thrift banks, 492 rural banks, 40
credit unions and 6,267 non-banks with quasi-banking functions in the Philippines (https://
doingbusinessinthephilippines.com/list-of-banks-in-the-philippines/)
Note: See Handout # 1 (page 14) for List of Commercial Banks in the Philippines and Handout
#2 (page 14) for List of Top 10 Universal and Commercial Banks.

3. CREDIT COOPERATIVES
a. These are not-for-proCit Cinancial institutions that exist to serve its members.
b. These provide products and services to people who share something in common, such as
where they work or live, or even their nationality.

Note: See Handout #3 (page 15) for List of Top 10 Billionaire Cooperatives in the Philippines.

4. SAVINGS AND LOAN ASSOCIATIONS

a. These are Cinancial institutions that are mutually held and provide no more than 20% of.
total lending to businesses.
b. These are used by individual consumers for deposit accounts, personal loans and
mortgage lending.

Note: See Handout #4 (page 15) for List of Savings Bank

5. INVESTMENT BANKS AND COMPANIES

a. These help individuals, businesses and governments by raising capital through the
issuance of securities instead of accepting deposits.
b. These are more commonly known as mutual fund companies, pool funds from individual
and institutional investors to provide them access to the broader securities market.

Note: See Handout #5 (page 16) for the List of Investment Banks in the Philippines.

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6. BROKERAGE FIRMS
a. These are the ones who provide services to individuals and institutions who are
willing to buy and sell available investment securities.
b. Customers of brokerage Cirms can place trades of stocks, bonds, mutual funds, exchange
traded funds (ETFs) and some alternative investments.

Note : See Handout #6 (page 16 - 17) for the List of Brokers in the Philippines.

7. INSURANCE COMPANIES
a. These are Cinancial institutions that help individuals to transfer risk of loss.
b. Services include protection against Cinancial loss due to death, disability, accidents,
property damage and other misfortunes of individuals and businesses.

Note: See Handout #7 (page 18) for the List of Insurance Companies and Handout #8 (page 18)
for The Top 10 Insurance Companies.

8. MORTGAGE COMPANIES
a. These are Cinancial institutions that provide funds through loans subject to the
availability of property used as collaterals.
b. Most of these mortgage companies have specialization in lending options for
commercial real estate only, however, they also serve the individual consumer
market.

E. BASIC TYPES OF FINANCIAL INSTRUMENTS

1. SAVINGS ACCOUNTS (SA)

a. These are safe haven to store emergency funds.
b. It provides easy access to extra money and is generally insured with Philippine Deposit
Insurance Company for maximum amount of P500,00000.
c. The main drawback of such accounts is that interest rates tend to be lower compared with
that of other Cinancial instruments.

2. TIME DEPOSITS (TD)

a. Deposits that cannot be withdrawn over a Cixed term or period.
b. Earn higher interest rates compared to SA and CA, depending on the amount placed and
term.
c. Banks or Cinancial institutions can re-invest /re-lend it for higher returns before the term
deposit matures.

3. MONEY MARKET FUNDS

a. Relatively conservative and low-risk instruments invested in highly marketable and
"near-cash" instruments like short term government securities, money market securities
and other highly marketable Cixed-income instruments.
b. Best suited for investors who are willing to take minimal risks and are after investment
returns better than deposits.

4. STOCKS
a. Stock market gives the opportunity to buy shares of companies under normal
circumstances.
b. Companies list or sell portions of the shares of stock to raise capital instead of
borrowing from Cinancial institutions or using its cash Clow.

5. BONDS
a. Debt security wherein someone is borrowing money and there's another lending
it.
b. As a security, it means the borrower is under a legal obligation to pay the lender.

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NAME: __________________________________________________________ SECTION: 12 - ____________________

c. A bond is a certiCicate of debt issued by the government or a company with a promise to

pay a speciCied sum of money at a future date and carries interest at a Cixed rate.
d. Terms of bonds are usually long term ranging more than one year to 30 years.
e. Bonds as investment instruments are generally considered safer than shares of stocks
because bondholders are paid ahead of the stockholders in case a company becomes
bankrupt.
f. Independent bond-rating agencies rate the likelihood that any given bond will default.
g. There are two basic types of bonds:
i. Government Bonds also called Retail Treasury Bonds, Treasury Notes, T-bills;
investing in government bonds means that the investors are lending money
to the government
ii. Corporate Bonds are long-term commercial papers; investors are lending
money to a corporation

6. MUTUAL FUNDS
a. Generally a pool of money from a group of investors entrusted to a Cinancial institution
for investment purposes.
b. Usually professionally managed by a mutual fund manager for investments in securities,
like, shares of stock, bonds, money market, instruments or a combination of these

Note: See handout #9 (page 19) for Table on Mutual Funds.

7. ANNUITIES
a. An insurance product that pays out income on a predetermined amount during the
lifetime or upon its maturity.
b. Being used as part of a retirement strategy.
c. Popular choice for investors who want to receive a steady income stream upon retirement
d. Products sold by an insurance company designed to provide payments to the holder at
speciCied intervals, usually after retirement.
e. Earning cannot be withdrawn without penalty, until a speciCied age and are taxed only at
the time of withdrawal.
f. Relatively safe, low-yielding investments
g. Provides death beneCit to the holder equivalent to its current value or the amount of
cumulative payment whichever is higher

VII. FLOW OF FUNDS WITHIN AN ORGANIZATION

• All business transactions include the exchange of value between 2 or more parties which
are measurable in terms of money particularly cash if not on credit or on account.
•Companies will not be able to attain growth by offering on a cash basis only.
•There is a need to generate positive cash Clows through intensiCied collection of accounts or
by ensuring that the company's long-term cash inClows exceed its long-term cash outClows.
•There will be an outClow of cash when a company pays cash to another party. Such
payment could be made to pay for employees, suppliers or creditors or to purchase long-
term assets and investments, or even pay for legal expenses and lawsuit settlements.
•A cash inClow involves a receipt or collection of cash which is the exact opposite of a cash
outClow. Typically, the majority of a company's cash inClows are payments received from
customers, cash received from borrowings and cash from investors who purchase
company's shares of stock or equity from the company.
•Occasionally, cash Clows come from other sources like cash settlements for legal cases or
cash generated from the sale of company real estate or equipment.

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NAME: __________________________________________________________ SECTION: 12 - ____________________

ASSIGNMENT TO BE SUBMITTED ON AUGUST 20, 2021. EMAIL

ME YOUR ANSWERS.

ANSWER THE FOLLOWING QUESTIONS.

1. DeCine Working Capital.

2. If you are to set up a Convenient Store, how would you meet the different Cinancial requirements?
Explain in brief.
3. Write, in brief, any two points of difference between Cixed capital and working capital.
4. How can shortage of working capital put a business organization into difCiculties? Explain brieCly.
5. Give 5 reasons why you should manage your business Cinances.

HANDOUT #1
LIST OF COMMERCIAL BANKS IN THE PHILIPPINES AS OF MARCH 2018
(https://doingbusinessinthe Philippines.com/list-of-banks-in-the-philippines/)

Bank of Commerce
Philippine Veterans Bank

Philippine Bank of Communications CTBC Bank (Philippines) Corporation

Robinsons Bank Corporation Bangkok Bank Public Co, Ltd.

Maybank Philippines, Incorporated Bank of America, .A.

Bank of China Limited - Manila Branch Citibank , N.A

JP Morgan Chase Bank, N.A. KEB Hana Bank - Manila Branch

Mega International Commercial Bank Co., Ltd. The Bank of Tokyo - Mitsubishi UFJ, Ltd.

First Commercial Bank, Ltd. - Manila Branch Cathay United Bank, Co., Ltd. - Manila Branch

Shinhan Bank - Manila Branch Industrial Bank of Korea - Manila Branch

United Overseas Bank, Ltd., - Manila Branch Hua Nan Commercial Bank, Ltd., - Manila Branch

BDO Private Bank, Inc. Sumitomo Mitsui Banking Corporation - Manila,Branch

HANDOUT #2

TOP 10 UNIVERSAL AND COMMERCIAL BANKS

(https://doingbusinessinthe Philippines.com/list-of-banks-in-the-philippines/)

ASSETS IN PHIL. PESO

UNIVERSAL AND COMMERCIAL BANK
(DATA PROVIDED BY BSP AS OF SEPT., 2017)

1. Banco de Oro (BDO Unibank, Inc.) 2,484,620,73,596.92

2. Metrobank (Metropolitan Bank & Trust Co.) 1,627,441,032,025.43

3. Bank of the Philippine Islands (BPI) 1,542,030,664,261.33

4. Landbank of the Philippines 1,479365223422.43

5. Security Bank Corporation 796,957,013,257.16

6. Philippine National Bank 758,919,001,298.77

7. Chinabank (China Banking Corporation) 607,574,589,342.64

8. Development Bank of the Philippines 557,458,721,276.70

9. Union Bank of the Philippines 488,052,235,582.21

10. Rizal Commercial Banking Corporation 420,353,746,114.14

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NAME: __________________________________________________________ SECTION: 12 - ____________________

HANDOUT #3

TOP 10 BILLIONAIRE COOPERATIVES IN THE PHILIPPINES AS OF MARCH 2016

(https://pilipinaspopcor.com/get-to-know-the-billionaire-cooperatives-in-the-philippines/)

1. Philippine Army Finance Center Producers 6. PLDT Employee's Credit Cooperative,

Integrated Cooperative (PAFCPIC) Inc.

7. Novaliches Development Cooperative

2. ACDI Savings and Credit Cooperative
(NOVADECI)

8. Pangasinan III Electric Cooperative

3. First Community Cooperative
(PANELCO III)

4. Cooperative Rural Bank of Bulacan 9. DSE (BSP) Credit Cooperative

5. Cebu CFI Community Cooperative 10. Metro South Cooperative Bank

HANDOUT #4

LOCATION OF NUMBER OF
SAVINGS BANK
HEADQUARTERS BRANCHES

BPI Family Savings Bank Makati 173

BPI Direct BanKO, Inc., A Savings Bank formerly BPI Globe BanKo, A
San Juan City 106
Savings Bank

Business and Consumers Bank (A Development Bank) Iloilo City 5

China Bank Savings, Inc. Makati 160

City Savings Bank, Inc. Cebu City 106

Citystate Savings Bank, Inc. Pasig City 30

Farmers Savings and Loan Bank, Inc. Bulacan 8

First Consolidated Bank, Inc. (A Private Development Bank) Tagbilaran City 129

HSBC Savings Bank (Phils.), Inc. formerly Allied Savings Bank Makati 9

Philippine Savings Bank (PSBank) Makati 255

Phil Star Development Bank, Inc. Batangas 1

PNB Savings Bank, Makati (formerly Allied Savings Bank) Makati 57

Queen City Development Bank, Inc. (A Thrift Bank) (Queenbank) Iloilo City 16

RCBC Savings Bank, Inc Pasig City 157

UCPB Savings Bank Makati 62

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NAME: __________________________________________________________ SECTION: 12 - ____________________

HANDOUT #5

TOP INVESTMENT BANKS IN THE PHILIPPINES

ABCapitalOnline.com., Inc. Asian Alliance Investment Corporation

Asian Focus Group, Inc. BPI Capital Corporation

First Abacus Financial Holdings

Eastgate Capital Partners, Inc.
Corporation

First Metro Investment Corporation FSG Capital Inc.

Investment & Capital Corporation of the

Insular Investment & Trust Corporation
Phil.

Mabuhay Capital Corporation, Inc. Medco Holdings, Incorporated

PNB Capital and Investment

Navarro Amper & Co.
Corporation

Punongbayan and Araullo SB Capital Investment Corporation

Unioil Resources & Holdings Company, Inc.

Https://www.wallstreetmojo.com/investment-banking-in-philippines

HANDOUT #6

Broker Website Minimum Amount to

Deposit

AAA Equities https://aaa-equities.com.ph P20,000

AB Capital Securities, Inc. www.abcapitalonline.com P10,000

Abacus Securities Corp. www.mytrade.com.ph P10,000

Alpha Securities Corp. https://alpha.psetradex.ph not mentioned

AP Securities Inc. (formerly Angping &

https://www.aps.com.ph P5,000
Associates Securities, Inc.

BA Securities, Inc. https://baseconline.psetradex.ph not mentioned

https://www.bdo.com.ph/ none as long as you have

BDO Nomura Securities, Inc. BDO Online Banking
bdonomura/
account

BPI Securities Corporation www.bpitrade.com none if you have BPI

account

Coherco Securities, Inc. www.cohercotrade.ph P150,000

P5,000 for EIP; P25,000

COL Financial Group, Inc. www.colfinancial.com
for Active Traders

DA Market Securities, Inc. https://itrade.ph P100,000

Eastern Securities Development Corp. https://www.eastern-sec.com not mentioned

F. Yap Securities, Inc. www.2tradeasia.com P25,000

First Metro Securities Brokerage

https://www.firstmetrosec.com.ph/ P5,000 for new clients
Corporation

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NAME: __________________________________________________________ SECTION: 12 - ____________________

Minimum Deposit to
Broker Website
Open an account

HDI Securities, Inc. https://hditrade.psetradex.ph/ P25,000

http://
Investors Securities, Inc. P25,000
investorsonline.psetradex.ph

https://
JAKA Securities Corp. not mentioned
jakaseconline.psetradex.ph/

https://
Lucky Securities, Inc. not mentioned
luckyseconline.psetradex.ph

Maybank ATR Kim Eng

www.maketrade.com.ph P25,000
Securities, Inc.

https://
Meridian Securities, Inc. P25,000
msitradeonline.psetradex.ph

https://
Optimum Securities Corporation not mentioned
optimumonline.psetradex.ph

Papa Securities, Corp. http://www.p2ptradeonline.ph P5,000

Philstocks Financial, Inc. www.philstocks.ph P5,000

RCBC Securities, Inc. www.rcbcsec.com not mentioned

Regina Capital Development

https://reginacapital.psetradex.ph not mentioned
Corp.

Timson Securities, Inc. https://timson.com.ph P25,000

none if you have UCPB

UCPB Securities, Inc. https://www.ucpbsec.com
account

Unicapital Securities, Inc. www.utradeph.com P10,000

VC Securities Corp. http://vcsecurities.biz P10,000

Wealth Securities, Inc. https://www.wealthsec.net P10,000

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NAME: __________________________________________________________ SECTION: 12 - ____________________

HANDOUT #7

COMPOSITE (LIFE AND NON-

LIFE INSURANCE COMPANIES NON-LIFE INSURANCE COMPANIES
LIFE INSURANCE
AsianLife and General
AsianLife Financial Assurance
Assurance Corporation - (ATR
Corporation (Formerly All Asia Life AFP General Insurance Corporation
Professional Life Assurance
Assurance Corporation, March 31, 2003)
Corporation / March 31, 2003
CLIMBS Life and General
Banclife Insurance Company, Inc. Allied Bankers Insurance Corporation
Insurance Cooperative
Paramount Life & General Alpha Insurance and Surety Company,
Beneficial Life Insurance Company, Inc.
Insurance Cooperative Inc.
Asia Insurance (Philippines) Corporation
Philippine American Life and
BF Life Insurance Corporation (Asia Traders Insurance Corporation )
General Insurance Company
June 23, 2004
BPI-Philam Life Assurance Corporation
Asia United Insurance, Inc.
(Ayala Life Assurance, Inc.)

HANDOUT #8

TOP 10 INSURANCE COMPANIES BASED ON NEW BUSINESS ANNUAL PREMIUM

EQUIVALENT (NBAPE)
Insurance Company NBAPE

Sun Life of Canada (Philippines), Inc P8,221,221,183

Philippine AXA Life Insurance. Corp P5,998,076,869

Pru Life Insurance Corp. of U.K. P5,758,660,185

Philippine American Life & Gen. Ins. Co. P4,425,212,142

BPI Philam Life Assurance Corp., Inc. P3,727,064,538

BDO Life Assurance. Co., Inc. (Generali Pilipinas Life) P3,488,805,557

Manufacturers Life Ins. Co. (Phils.), Inc., The P3,479,023,654

FWD Life Insurance Corp. P2,516,095,794

United Coconut Planters Life Assurance. Corp P2,313,865,366

Insular Life Assurance. Co., Ltd., The P2,177,840,122

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NAME: __________________________________________________________ SECTION: 12 - ____________________

HANDOUT #9

MUTUAL FUNDS: Source: philpad.com

MUTUAL FUND INVESTOR RISK GOAL
Money Market Fund Conservative Low 3 - 6 months
Moderately
Bond Fund Moderate 1 year
Conservative

In-between
Balanced Fund Conservative and Balanced 1 - 3 years
Aggressive
Equity Fund Aggressive High 3 years or more

ANSWERS ON QUICK ASSESSMENT: 1) F; 2). F; 3). T; 4). F; 5) T

REFERENCES:
th
Bernstein, Leopold. Financial Statement Analysis, 4 Ed. Illinois: Irwin, 2014.
Brealey, Richard A., Myers, Stewart.C. and Marcus, Alan .J. Fundamentals of Corporate Finance, 3rd
Edition. New York: Mc-Graw Hill Co., 2014.
Brigham, Eugene F. Fundamentals of Corporate Finance, 8th Ed. Canada: Dryden, 2010
Cabrera, Elenita B. Management Advisory Services. Manila: Conanan, 2015.
Cabrera, Elenita B. Management Consulting. Manila: Conanan, 2015.
Cecchetti, Stephen G. Money, Banking and Financial Markets, 2nd Edition. 2010
Cruise, Tom. The Firm. DVD. Directed by Sydney Pollack. USA: Paramount, 1993.
Eakins, Stanley G. The Study Guide. North Carolina: East Carolina University, 2014.
Gitman, Lawrence J. and Joehnick, Michael D. Fundamentals of Investing, 8th Edition. Boston:
Addison Welsey, 2013.
Gitman, Lawrence J. Principles of Financial Management. New York: Pearson 2014
http://suppscentral.aw.com
Ilano, Alberto R. Investment Management and The Philippine Stock Market. Manila: FINEX, 2014
McLaney, Eddie. Business Finance: Theory and Practice, 8th ed. Prentice Hall Financial Times/
Pearso Education, 2009.
Melicher, Ronald W. and Norton,Edgar A. Introduction to Finance, Markets, Investments and Financial
Management, 14th Edition. Canada: McGraw-Hill Ryerson Higher Education, 2014.
Padilla, Nicanor B. Jr. How to Analyze Financial Statements. Manila: Conanan, 2007.
Pringle, John J. and Harris, Robert Samuel. Essentials of Managerial Finance, 2nd Ed. Canada: Dryden,
2014.

Saldana, Cesar G. Principles of Managerial Finance: Philippine Setting. Quezon City: AFA Publications,
2000.

Weston, Fred and Copland, Thomas E. Managerial Finance, 9th Ed., Canada: Dryden, 2012.

White, Gerald I., Sondhi, Ashwinpaul C., and Fried, Dov. The Analysis and Use of Financial Statements,
New Jersey: Wiley, 2012.
www.aw-bc.com/gitman

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