BUSINESS FINANCE

1ST Quarter
Lesson 1: Financial Analysis
 Business Finance – the study of financing and investment decisions made from theory to
practice. Making of decisions about which investment the business should make.
Management of money on other valuable asset.

Role of Business Finance

 Financing – the act of bringing money into the organization.
Methods of Financing
1. Taking on Debt
2. Credit Arrangements
3. Investments on Real assets and Financial assets

 Financial Management – The planning, directing, monitoring, organizing, and controlling

of monetary resources of an organization.
Forms of Business Ownership Deals with decision that supposed
to maximize shareholders wealth.
1. Sole Proprietorship – a business owned by one person
2. Partnership – a business owned by two or more people
3. Corporation – an entity created by law owned by shareholders
4. Cooperative – an entity owned and operated by member and to serve them and earn profit
through patronage refund
Scope of Financial Management
1. Investment Decision – investment on fixed assets and current assets
2. Financial Decision – raising of finance from various resources
3. Dividend Decision – decision on net profits distribution which are:
a) Dividend for Shareholders
b) Retained Profits
Objectives of Financial Management
1. Ensure regular and adequate supply of funds
2. Ensure adequate returns of shareholders
3. Ensure optimum fund utilization
4. Ensure safety of investment
5. Plan a sound capital structure
Functions of Financial Management
1. Estimation of Capital Requirements – such as expected costs and profits, programs and
policies to ensure increase in earning capacity
2. Determination of Capital Composition – after estimation, capital structure should be
decided, it involves short term and long term debt equity. (D/E) analysis
 Leveraging/ Risk Gearing – measures the amount of debt a company uses to fund it’s
business.
 Risk Defaulting – being unable to repay, your debt increases as your debt to equity ratio
rises.
3. Choice on the Source of Funds
a) Issue of shares and debentures
b) Loans from banks and financial institution
4. Investment of Funds – allocating fund to profitable ventures of safety investment and
regular returns.
5. Disposal of Surplus – or net profit disposal, done through:
a) Dividend Declaration
b) Retained Profit – expansion, innovation, and diversification
6. Management of Cash – for administrative and distributive cost
7. Financial Control – controls finances through ratio analysis, financial forecasting, cost
profit control.

Lesson 2: Introduction to Financial Management

Corporative Organization
1. Shareholders
a) Elects the Board of Directors
b) Elects share held is equal to one voting right
c) BOD must carry out the responsibility to achieve the objectives of the shareholders
2. Board of Directors
a) Setting policies on investments, capital structure, and dividends
b) Approving company’s strategies, goals, and budgets
c) Appointing and removing members of the top management including the president
d) Determining top managements compensation
e) Approving the information…
3. President
a) Overseeing the operations of a company and ensuring that the strategies as approved
by the board are implemented as planned
b) Performing all areas of management: planning, organizing, staffing, directing, and
controlling
c) Representing the company on conferences
 4. Chief Financial Officer – Importance of Finance in running a business ( Unilever,
Jollibee, Globe Telecom, and SM Corp )
5. Vice President for Sales and Marketing
a) Formulates marketing strategies
b) Directing and coordinating company sales
c) Performing market and competitors analysis
d) Analyzing and evaluating the effectiveness and cost of marketing methods applies
e) Conducting or Directing research
f) Promoting good relationship with the customers and distributors
6. Vice President for Production
a) Ensuring production meets customers demand
b) Identify production tech/ process that minimizes production cost and make company
cost competitive
c) Coming up with production plan
d) Identify adequate and competitive price
7. Vice President for Administration
a) Coordinating the functions of administration, finance, sales, and marketing
departments
b) Providing assistance in payroll preparation
c) Determining the location and the maximum amount of office space needed by the
company
d) Identify means, processes, or system that will minimize the operating costs of the
company
8. Vice President for Finance
a) All about financing, investing, operating and dividend policies
 Financing – to determine the appropriate capital structure of the company and to raise
funds from debt and equity. Include making decisions on how to fund long term
investments.
 Capital Structure – refers to how much of your total assets is financed by debt and how
much is financed by equity
Investment Decision
1. Short Term Investment
2. Long Term Investment
Two types of Liquidity Risk
1. Risk that the company will fail to pay its short term obligations
2. Risk that you will not be able to sell investments in financial assets immediately
 Dividend Policies – this determine when the company should declare cash dividends
a) Availability of financially viable investments
b) Access to long term sources of funds
c) Managements target capital structure
  Financial Placement – the sale of a new security directly to an investor or group of
investors
 Financial Market – organized forums in which the suppliers and users of various types of
funds can make transactions directly
 Financial Institution – intermediaries that channel the savings of individuals, business,
and governments loans or investment
 Public Offering - the sale of either bonds or stocks to the general public
 Financial Instruments – is a real or a virtual document representing a legal agreement
involving some sort of monetary value.
a) A Financial Asset is any asset that is Cash
b) A Financial Liability is any liability that is a contractual obligation
c) An Equity Instruments is any contract that evidence a residual interest in the
assets of an entity after deducting all liabilities
 Debt Instrument – generally have fixed returns due to fixed interest rates
a) Treasury Bonds and Bills – have usually low interest rate and have very low risk
of default
b) Corporate Bonds – usually have higher interest rates than Treasury Bonds
 Equity Instrument – generally have varied returns based on the performance of the
issuing company. Comes from either dividends or stock price appreciation
a) Preferred Stock – has the priority over the assets of the company
b) Common Stock – the real owners of the company
Financial Markets
 Primary Markets – in which securities are initially issued; the only market in which the
issuer is directly involved in the transaction
 Secondary Markets – in which pre-owned securities are traded
 The sale of new securities to the general public is referred to as public offering, and the
first offering of stock is called an initial public offering. The sale of new securities to one
investor or a group of investors is referred to as a private placement. The sale of
previously owned securities takes place in secondary market.
 Money Markets – are a venue wherein securities with short term maturities are sold.
 Capital Markets – for long term maturities are sold here.
Financial institution
 Commercial Banks – individuals deposit funds
 Insurance company – individuals purchase insurance protection with insurance premiums
 Mutual Funds – are owned by investment companies which enables small investors to
enjoy the benefits of investing in a diversified portfolio
 Pension Funds – financial institutions that receive payments from employees and invest
the proceeds on their behalf
 Other Financial Institution – include pension funds like GSIS, SSS, UITF
 Managers – Financial managers makes financing decisions
 Financial Markets – provide forum in which firms can issue securities to obtain funds
 Investors – provide funds that are used by financial managers to finance corporate growth