BUSINESS FINANCE

MODULE 1(WEEK 1 AND 2)

Pre-Test:

1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE
11. FALSE
12. FALSE
13. FALSE
14. FALSE
15. FALSE

Looking Back:

1. Sole Proprietorship
2. Corporation
3. Sole Proprietorship
4. Partnership
5. Cooperative

Forms of ownership Advantages Disadvantages

1. Sole Proprietorship
a. There is a great deal of a. Unlimited liability
freedom to enter and
exit the marketplace.
b. A sole entrepreneur has b. Great difficulty in obtaining
more freedom to make finance
decisions.
c. He/she can also keep c. Difficulty in competing with
his financial larger firms.
information, business
 strategies, and
production method
private.
2. Partnership a. It is cheap and easy to a. Unlimited liability for
form, just requiring a ordinary partners.
legal contract called a
Deed of Partnership
b. Having more than one b. Twenty partners might still
owner should increase be far too few to exploit
the amount of money economies of scale fully.
that can be raised for
investment in the
business
c. partners who do not c. partners have to trust each
work in the business other, because if one partner
can have limited leaves, the whole partnership is
liability. dissolved and a new one has to
be formed by the remaining
partners.
3. Corporation a. They have wider to a. Accounts have to be
wider sources of capital. made available to the
public
b. They can enjoy b. It is very expensive.
economies of scale.
c. Shareholders have c. The original founders of
limited liability. He/she the company are likely
is only liable for the to lose control of it, as
portion of his/her their shareholding
ownership in the diluted and this may
corporation and he is discourage owners of
not personally liable for firms from going public.
any obligations of the
corporate entity.
 ACTIVITY 1:

1. 3 suppliers of funds that you know

a. Households
b. Life insurance companies.
c. Lending institutions.
2. 3 users of funds that you know
a. Individuals
b. Businesses
c. Governments
3. Who are the makers of financial liabilities and Equity instruments?
- Businesses, individuals, and stockholders are the creators of financial liabilities and equity
instruments.
4. Identify common examples of Debt and Equity instruments
a. Debt instruments- Bonds, debentures, leases, certificates, bills of exchange and promissory
notes.
b. Equity instruments- common stock, preferred stock, contributed surplus, additional paid-in
capital, retained earnings, other comprehensive earnings, and treasury stock.
5. Examples of financial institutions
Banks, insurance companies, lending institutions, mortgage businesses, and finance companies
are examples of financial institutions.

ACTIVITY 2:

1. Research on the advantages and disadvantages of Equity instruments

Advantages

Less burden. With equity financing, there is no loan to repay. The business doesn’t have to make a
monthly loan payment which can be particularly important if the business doesn’t initially generate a
profit. This in turn, gives you the freedom to channel more money into your growing business.

Credit issues gone. If you lack creditworthiness – through a poor credit history or lack of a financial track
record – equity can be preferable or more suitable than debt financing.

Learn and gain from partners. With equity financing, you might form informal partnerships with more
knowledgeable or experienced individuals. Some might be well-connected, allowing your business to
potentially benefit from their knowledge and their business network.

Disadvantages

Share profit. Your investors will expect – and deserve – a piece of your profits. However, it could be a
worthwhile trade-off if you are benefiting from the value they bring as financial backers and/or their
business acumen and experience.

Loss of control. The price to pay for equity financing and all of its potential advantages is that you need
to share control of the company.
Potential conflict. Sharing ownership and having to work with others could lead to some tension and
even conflict if there are differences in vision, management style and ways of running the business. It
can be an issue to consider carefully.

2. Differentiate different financial institutions

- Commercial Banks- Individuals deposit funds at commercial banks, which use the deposited funds to
provide commercial loans to firms and personal loans to individuals, and purchase debt securities issued
by firms or government agencies.

- Insurance Companies- Individuals purchase insurance (life, property and casualty, and health)
protection with insurance premiums. The insurance companies pool these payments and invest the
proceeds in various securities until the funds are needed to pay off claims by policyholders.

- Lending Institutions- These institutions are similar to non-banks with quasi-banking functions

in which they are able to offer loans to individuals and businesses.

3. Compare money markets vs. Capital markets.

Capital markets are where debt instruments with maturities longer than one year and equity securities
are traded while money markets are where debt securities with maturities of one year or less are
traded.

4. Identify which type of financial institution do you think the most critical for firms.

Commercial banks are the largest and most visible financial intermediaries in the economy, providing
businesses with the widest variety of financial services. They accept deposits and give loans to
individuals who need money to start a business.

5. What is the meaning of IPO? When it takes place?

- Initial Public Offering, The first time a corporation sells shares publicly is referred to as an initial public
offering (IPO). It's a type of equity funding. An initial public offering (IPO) is frequently a turning point for
a business, arriving after years of borrowing money and courting private investors.

6. Illustrate corporate organization structure and their position and role in the decision making of the
company
 ASHAREHOLDERS
- The shareholders own the corporation,
which means they often get a vote in
certain decisions. that individual would
have complete control in conjunction
with Boards of Directors. Many
Owners, Founders, and everyday
Shareholders take a limited role in
daily tasks.

BOARD OF DIRECTORS

- The board's principal role is to guarantee

that the corporation is run in the
stockholders' best interests.

PRESIDENT

- Planning, organizing, staffing, leading, and

controlling are all aspects of management.
Attending professional, social, and civic
events on behalf of the company.

EMPLOYEES

- Employees make the business run. They

carry out the various tasks associated with
the company’s mission. Employees report to
a management team which lays out
expectations and individual roles.

Activity No. 3
 Role of Financial Managers
Financial manager ensure
prudent financial decisions with
wise use of financial resources
to increase stakeholder value.
They are also responsible for
making decisions on how to
fund long term investment
Role of Financial Markets
Financial Market is an important
factor in facilitating the
operation and transfer of
financial resources.
Role of Investors
They will fund the start-up of
the company. They can also
help with a startup's business
plan. Because they are profit-
driven, they will ensure that
capital is invested wisely. To put
it another way, they urge you to
manage the finances carefully
because their own money is on
the line.

Check Your Understanding

1. At least two universal and commercial banks in the Philippines.

- Universal banks- BDO Unibank and Metropolitan Bank and Trust Company.

Commercial banks- Asia United Bank Corp. and Bank of Commerce.

2. At least two thrift banks in the Philippines.

- BPI Family Savings Bank Inc and Philippine Savings Bank.

3. At least two insurance companies

- AIA Philippines Life and General Insurance Company Inc.

What are their products and services?

-Investment, Education, Savings, Medical, Health, and Protection.

- St. Peter Life Insurance

What are their products and services?

-Life Insurance and Investment

How can an individual use of their products and services as means to finance a start-up business?

- Insurance provides assets that can be used as capital to start a business by individuals. Insurance
provides protection in the event that your firm causes injury to clients or passers-by, or if your
organization is harmed by an incident such as a fire.

Post-Test:

1. A
2. A

3. B

4. B

5. A

6. C

7. A

8. D

9. D

10. B

11. D

12. A

13. A

14. C

15. C