BUSINESS FINANCE

1. It is the goal of financial management.

A. minimizing risk C. minimizing return
B. maximizing profit D. maximizing wealth
2. He/She provides the direction of the company.
A. finance manager C. marketing manager
B. board of directors D. shareholders
3. He is the one who supervises the company’s operation and ensuring that the
strategies are well executed and planned.
A. finance manager C. marketing manager
B. president D. shareholders
4. Which of the following is not a role of a finance manager?
A. analysis and planning C. utilization of funds
B. acquiring of funds D. marketing research
5. It refers to how much the total asset is financed by the debt or equity.
A. capital structure C. organization structure
B. loan D. stocks
6. He/She is responsible in managing the cash and credit, financial planning
and capital expenditures.
A. treasurer C. controller
B. secretary D. president
7. He/She handles tax payments, financial accounting and management
information systems.
A. treasurer C. controller
B. secretary D. president
8. It deals with determining the capital structure of the company and to raise
funds from debt and equity.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividends
9. It deals with working capital management.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividends
10. It deals with managing the assets of the firm.
A. investing decisions C. operating decisions
B. financing decisions D. declaration of dividend

Finance is a process that includes raising money or resources and allocating

them effectively and efficiently to achieve the firm’s goals or objectives. It includes
financial management, the study of investment, and the study of institutions and
markets. Money is needed by the firm to continue its operations, expansion,
replacement of new machinery and equipment, payments, acquisition of new
investment, and internal growth.
According to Gitman and Zutter (2012), “Finance can be defined as the science
and art of managing money.
According to Cayanan and Borja (2017), “Financial management deals with
decisions that are supposed to maximize the value of shareholders’ wealth.”
According to Cabrera (2017), “In striving to maximize owners’ or shareholders’ wealth,

The goal of financial management is to maximize the wealth of the

shareholders. Its aim is to make money and add value to the investors and to the
firm. Investors buy stocks because they want something in return.

Financial management includes planning, organizing, controlling, and

directing to acquire and utilize the funds or resources effectively and efficiently.

Sources of finance can be internal or external. An internal source of finance

does not increase the debts of the business-like profit, savings, and sale of unwanted
assets while, an external source of finance is provided by people or institutions
outside the business that creates debt and requires payment like loans.

• The Shareholders elect the Board of Directors (BOD). Each share is equal to one voting right.
• The Board of Directors is the highest position in a corporation. Some of their responsibilities are
providing direction of the company,
•The President supervises the company’s operations and ensures that the strategies are well executed
and planned.
•Some of the responsibilities of Vice President for Sales and Marketing are formulating business
strategies and plans
• The Vice President for Administration is responsible for the coordination of the different departments
• The Vice President for Production makes sure that the production meets the demand,
• The Vice President for Finance makes decisions including planning, acquiring and utilization of funds

o Investing decisions deals with managing the assets of the firms.

o Financing decisions includes making decisions on how to finance the long-term investments
o Operating decisions deals with working capital management. Working capital refers to short-term
assets and short-term liabilities.
o Declaration of dividends refers to the determination of how much dividends are to be distributed to
the shareholders. Dividend is a portion of profit or payment made by a corporation to its shareholders

The treasurer is responsible in managing the cash and credit, financial planning and capital
expenditures. The controller handles tax payments, financial accounting and management information
systems.
TRUE_____1. The controller is responsible in managing the cash and credit,
financial planning and capital expenditures.
TRUE____2. Investing decisions deals with managing the assets of the firms.
TRUE____3. The Board of Directors is the highest position in a corporation.
TRUE__4. Financing decisions includes making decisions on how to finance the
long-term investments and working capital which deals with the
day-to-day operations of the company.
FALSE___5. The treasurer handles tax payments, financial accounting and
management information systems.
TRUE____6. Operating decisions deals with working capital management.
FALSE__7. Sales is a portion of profit or payment made by a corporation to
its shareholders.
FALSE____8. The goal of financial management is to minimize the wealth of
the shareholders.
FALSE_____9. Marketing management includes planning, organizing, controlling,
and directing to acquire and utilize the funds or resources effectively
and efficiently.
TRUE____10. The company must have enough retained earnings and cash to
declare cash dividends.

FINANCIAL MANAGEMENT______11. It deals with ways of managing money.

FINANCIAL MANAGEMENT_______12. It is concerned with planning, analysis, utilization, and
acquisition of funds.
SHAREHOLDERS_______13. They elect the Board of Directors.
PRESIDENT_______14. He/She is appointed by the Board of Directors.
MARKETING MANAGER_______15. He/She formulates business strategies and plans.

SAVERS 1. Their cash inflows are greater than their

cash outflows.
FINANCIAL MARKET 2. It is the meeting place of suppliers and
users of various types of funds where
transactions can be made directly.
MONEY MARKET 3. It is a venue wherein securities are
borrowed for less than a year.
COMMON STOCK 4. It is a security that represents ownership
in a corporation
FIINANCIAL INSTITUITION 5. These channel the savings of individuals,
businesses, and governments into loans
or investments
F______ 6. Common stock shareholders typically do not hold any
voting rights.
T______ 7. Direct financing is when a borrower borrows money from lenders in
the financial market by issuing securities.
T______ 8. The dividend for preferred stocks is fixed.
T______ 9. Treasury bonds are issued by the Philippine government.
T______ 10. Capital market involves the buying and selling of securities with
maturities for more than one year.
F______ 11. Common stocks have a priority over preferred stocks in terms of claims
over the assets of a company in case of bankruptcy.
F______ 12. IPO stands for Interest Private Offering.
T______ 13. Secondary market is where previously issued securities (such as bond,
notes, and shares) are bought and sold.
F______ 14. Treasury bonds are issued by publicly listed companies that usually
have higher interest rates than corporate bonds.
T______ 15. Mutual fund pools money from investors and invest these in the stock
market, bonds, treasury notes, and other money market instruments
like T-bills

A finance manager needs to look for funds to finance the company. If the company has extra cash,
he/she will make a decision where to put it.
The flow of money begins with the depositor who opens a bank account and earns interest from the
account.
A financial intermediary serve as a link between the depositor who has the money and the lender who
needs money
Financial institutions include commercial banks, universal banks, investment banks ETC.
Financial management is managing financial matters including analysis of statements, assessment, or
investment opportunities, which happens before one starts investing and acquiring funds from
different sources.
Financial instruments are the tools that help a business’ daily operations and help the finance
manager handles his/her cash, his/her short-term operating requirements, and long-term business
requirements.
Money market instruments are funds available for a short time (1 year or less than a year). They are
available most of the time and do not provide very high returns.
Bond is an example of long-term debt. It is a security reflecting the debts of a government’s or
business’ debt promising to pay a fixed interest to the bondholder for a definite time.
A note is another example of long-term debt that has a longer term than a money market instrument.
Stocks are types of security that represent ownership in a corporation and a claim on part of the
corporation’s assets and earnings. The two main types of stocks are common and preferred.
Financial Markets are the meeting places of suppliers and users of various types of
funds that can make transactions directly.
1. Primary Market – refers to financial market in which buyers and sellers
negotiate and transact business directly without an intermediary.
o Public offering is the sale of new securities to the general public
and the first offering of stock is called IPO or Initial Public Offering.
o Private placement is the sale of a new security to a private or
specific buyer.
2. Secondary Market – refers to financial market where previously issued
securities (such as bond, notes and shares) are bought and sold.
3. Money markets are venues wherein securities with short-term maturities
(1 year or less) are borrowed or loaned. Capital markets are financial
markets for stocks for a long-term period (one year or longer).

BANKS
1. Thrift banks are deposit-taking financial institutions that extend credit to the consumer market that
is in the countryside or rural areas.
2. Commercial banks are mainly deposit-taking financial institutions that extend credit to the retail
and consumer market, and their transactions are usually many but small, using the local currency
3. Universal banks lend money to multinational companies. The transactions are larger than
commercial banks and denominated in multicurrencies not just to the local currency
4. Investment banks provide loans to big corporations and governments and can raise funds through
bond issuances and initial public offerings. Investment banks also provide funds to businesses.

NONBANKS
1. Leasing Companies
Leasing companies extend financing to companies that need funds for
their business. They are not banks and are not regulated by central bank.
2. Investment Companies
Investment companies perform similar functions as banks in the
manner that they can provide financing to companies or raise funds through
bonds or Initial Public Offerings. They are regulated by the Securities and
Exchange Commission (SEC).
3. Mutual Funds
Mutual funds are types of investments or funds of small investors
pooled together and managed to be able to generate maximum returns.
4. Insurance Companies
Insurance companies sell life and non-life insurance products that offer
security during times of death, illness, accident, and damage to property.
Individuals buy insurance protection with insurance premiums. The
insurance companies use these payments to invest in stocks, bonds, real
estate, and mortgages. The proceeds will be the payment to the
insured individual.

5. Private Equity Funds

Private equity funds are managed by private fund managers or
investors, allowing owners to invest more aggressively in the
financial markets

_______1. It includes the vision, mission, and goals set by the top level
of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______2. It helps the company by translating the strategic plans into specific
plans or actions carried out by the middle level of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______3. It involves day-to-day operations carried out by the
lower-level management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______4. It sets the company’s direction.
A. short-term goal C. mid-term goal
B. long-term goal D. none of the above
_______5. It describes what a company wants to become.
A. vision C. goal
B. mission D. objective

Planning is very important because it provides directions to achieve the organization’s objectives.
Planning is useless without a strategy.
Strategic planning helps in achieving the company’s objectives. It is designed to guide the company in
operational and financial decisions. A strategic plan includes the vision, mission, and goals set by the top
level of management. This plan will be the basis of long-term decisions.
Tactical planning helps the company by translating the strategic plans into specific plans or actions
carried out by the middle level of management.
Operational planning involves day-to-day operations carried by the lower-level management. This plan
transforms the tactical plan into specific and detailed objectives.

Financial planning is the process of deciding how an organization can accomplish its financial goals and
objectives.
1. Set goals or objectives. The goals of a company can be divided into:
• short-term goals (1 year)
• mid-term goals (3-5 years)
• long-term goals (5-10 years or even longer)
Long-term goals set the company's direction. Short-term goals are the specific
steps or actions that will ultimately achieve the company's long-term goals.
Vision describes what a company wants to become and mission is how the
company will achieve its vision.
2. Identify the resources needed. Resources comprise production capacity,
human resources, and financial resources.
3. Identify a goal that is related to the tasks. The management must find out how
to achieve the goal. For example, if they want to increase sales, they can train
their sales agent to become more skilled in dealing with clients. They can also
make sales promotions as a marketing strategy.
4. Assign the task to an accountable and responsible individual or team and have
a timeline. After identifying the task to achieve the goal, the company must
identify who will be accountable for the activity. There should be a specific
timeline for it.
5. Establish an evaluation system for monitoring and controlling. The
management must establish a process that allows them to supervise the plan.
This can be done by comparing the budgets and projecting financial
statements with the actual results.
6. Determine contingency plans. The management has alternative plans to
minimize the risk or bad effect to the company

A contingency plan is an alternative plan of an organization to respond efficiently to a future event or

situation that may or may not happen. Budgets and projected financial statements are also considered
in contingency planning

MANAGEMENT PLANNING____1. It is about setting the goals of the

organization and identifying ways on
how to achieve them.
FINANCIAL PLANNING____2. It is the process of deciding how an
organization can accomplish its
financial goals and objectives.
VISION____3. It describes what a company wants
to become.
MISSION____4. It describes how the company will
achieve its goal.
CONTINGENCY PLAN____5. It is a plan designed to take a possible
future event or circumstance
into account.
SHORT TERM GOAL____6. These goals can be achieved in a year.
MID TERM GOAL____7. These goals can be achieved between
1-3 years.
LONG TERM GOAL____8. These goals can be achieved in 5-10
years or even longer.
PLANNING____9. It provides road maps for guiding, coordinating, and controlling the firm’s actions to
achieve its objectives

T 1. The projected statement of financial positions has to be balanced so

External Funds Needed (EFN) can be computed.
F ______2. If the company needs funds for the operation of the business, they can
only use debt instruments.
F ______3. If amount in EFN is positive, it means that the company has
excess cash.
F ______4. If amount EFN is negative, it means that the company needs
additional funds.
T ______5. If the company has excess cash, it means that it can pay its
financial obligations.
T ______6. Net cash flow gives information about the amount of excess cash or
cash deficit for the period.
F______7. Cash receipts include payments to suppliers and other service
providers, loans, and cash dividends.
T______8. A budget is an estimate of costs, revenues, and resources over a
specified period, reflecting a reading of future financial conditions
and goals.
T______9. In forecasting financial statements, sales are the most important
account because almost all of the accounts in the financial statements
are affected by it.
F______10. The cash disbursement is the collections from receivables, proceeds
from loans, issuance of new shares of stocks, and advances from
the stockholders.
T______11. Sales is the most important account in forecasting financing statement.
T______12. There should be information on income taxes and how much financing
cost a company will have to forecast net income.
T______13. The cash budget displays the expected cash receipts and
disbursements for an accounting period.
F______14. Sales budget is composed of the variable and fixed costs needed to run
the operations of the business.
F______15. Operating budget provides estimated amount of money based on the
volume of products that a company proposes to sell in a future period
A budget is an estimate of costs, revenues, and resources over a specified
period, reflecting a reading of future financial conditions and goals. Sales budget,
production budget, operating budget and cash budget are the budgets that need
to be prepared.

Sales Budget • It provides the estimated amount of money based on the volume of products that a
company proposes to sell in the future
Production Budget • It provides information with respect to the number of units that should be
produced over a given accounting period based on expected sales and targeted level of ending
inventories.
• Required Production in Units=Expected Sales + Target Ending Inventories- Beginning Inventories
Operating Budget • It is made to estimate how much their revenue and expenses would be within a
year.
Cash Budget • It displays the expected cash receipts and disbursements for an accounting period. It is
prepared on a monthly or quarterly basis for a year.

Parts of the cash budget are as follows:

1. Cash receipts- These compose of collections from receivables, proceeds from
loans, issuance of new shares of stocks, and advances from the stockholders.
2. Cash disbursements- These include payments to suppliers and other service
providers, loans, and cash dividends.
3. Excess cash balance or required total financing- This part of the cash
budget shows possible funding requirements. If the company has excess cash,
it is a good indicator that it can pay an existing loan or put it in an investment.
If there is no excess cash, the company must make a plan where to get funds

1. It is designed to ensure that a company operates efficiently by monitoring and

using its current assets and liabilities to the best effect.
A. working capital management C. inventory management
B. cash management D. receivable management
2. These refer to cash, accounts receivable, inventories, and prepaid expenses.
A. current assets C. current liabilities
B. noncurrent assets D. owner’s equity
3. It is the difference between current assets and current liabilities.
A. permanent working capital C. temporary working capital
B. net working capital D. contractual working capital
4. In this working capital financing policy, the permanent working capital
requirements should be financed by long-term sources while temporary
working capital requirements should be financed by short-term sources
of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
5. It is the time to collect cash from the sale of the inventory.
A. days of inventory C. days of receivable
B. days of payable D. none of the above
6. In this working capital financing policy, some of the permanent working
capital requirements are financed by short-term sources of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
7. In this kind of working capital policy, some of the temporary working capital
requirements are financed by long-term sources of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
8. It is the borrower’s willingness to pay the loan.
A. character C. collateral
B. capacity D. condition
9. It is the borrower’s security pledge for the loan payment.
A. character C. collateral
B. capacity D. condition
10.It is the borrower’s ability to pay the loan.
A. character C. collateral
B. capacity D. condition

Working capital management is the proper administration of current assets

and liabilities. Good working capital management enables the firm to pay its financial
obligation, establish good relationships with suppliers and creditors, and improve
the earnings of the company.
A working capital management is important because it can improve the
business profit. It allows the company to pay its financial obligations and leads to
the growth and survival.
Current assets like cash, accounts receivable, inventories, and prepaid
expenses used in the operations of the business are called working capital. It means
that they can be converted into cash, sold, or exchanged. The amount of resources
used in the operations of the business can be affected by current liabilities like trade
accounts payable.
Net working capital is the difference between current assets and
current liabilities.
Net Working capital = Current Assets – Current Liabilities

1. Maturity-matching working capital financing policy

The permanent working capital requirements should be financed by
long-term sources while temporary working capital requirements should be
financed by short-term sources of financing.
2. Aggressive working capital financing policy
Some of the permanent working capital requirements are financed by
short-term sources of financing.
3. Conservative working capital financing policy There are of the temporary working capital
requirements that are financed by long-term sources of financing.

Permanent or fixed working capital refers to the minimum level of current assets required by a firm to
continue the operations of the business and to cover up all current liabilities.
Temporary working capital is the difference between net working capital and
permanent working capital. It can help the business survive during the slack season.

Temporary working capital = Net working capital – permanent working capital.

Long-term sources of financing include long-term debt like loan from a bank
and equity such as common stock and preferred stock. Short-term sources include
short-term loans from a bank.

Cash management involves the maintenance of a cash and marketable securities investment level which
enables the company to meet its cash requirements and at the same time, optimize the income of idle
funds (Cabrera, 2015).

Reasons for Holding Cash

1. Transaction Motive – Cash is needed for the day-to-day operations of the
business.
2. Contractual Motive – Some banks require a company to maintain a certain
compensating balance for their deposit accounts and loans.
3. Precautionary Motive – Firms hold cash to be ready in case of unwanted
situations such as slowdown of accounts receivables that may affect the fund
for operations.
4. Speculative Motive – A company holds cash for other investment
opportunities.
Cash budget is used in determining the cash needs of the company. It shows
the projected cash receipts and cash disbursements for a particular period of time.

Receivables Management Providing credits to a customer is one way of increasing sales and gaining
additional customers.

The following 5C’s of credit can be used in credit evaluation.

1. Character – is the borrower’s willingness to pay the loan.
2. Capacity – is the borrower’s ability to pay the loan.
3. Capital – is the borrower’s financial resources.
4. Collateral – is the borrower’s security pledge for the loan payment.
5. Condition – is the current economic or business conditions

Inventory is the stocks of the product the business is selling and the parts or
raw materials that made up the product.
Inventory management is very important for manufacturing and
merchandising companies especially companies with perishable products.

The following are the list of internal controls that management should consider in to
protect their inventories.
1. Separating the custodial functions from recording functions. The
company should not allow the assignment of custodial functions from
recording functions to one person to avoid manipulation of records.
2. Aging of inventories. It allows the company to decide what to do with slowmoving items. For
example, they can use bundling or buy one take promo.
3. ABC Analysis. This approach categorizes the inventories according to
their values. A is considered the most important inventory or with the
highest values, B is considered the average item and C is the least
important or has lower value

A. ABC analysis B. Working capital C. Net working capital D. Maturity-matching E. Aggressive working
F. Conservative working G. Collateral H. Capacity I. Character J. Condition K. Capital L. Days of inventory
M. Days of receivable N. Temporary working capital O. Permanent working capital

o______ 1. It refers to the minimum level of current assets required by a firm to

continue the operations of the business and to cover up all
current liabilities.
b______ 2. These are current assets used in the operations of the business.
c______ 3. It is the difference between current assets and current liabilities.
d______ 4. In this kind of financing policy, some of the temporary working
capital requirements are financed by long-term sources of financing.
e______ 5. In this kind of financing policy, some of the permanent working
capital requirements are financed by short-term sources
of financing.
f______ 6. In this kind of financing policy, the permanent working capital
requirements should be financed by long-term sources while
temporary working capital requirements should be financed by
short-term sources of financing.
a______ 7. This concept classifies the inventories into three categories according
to its importance or value.
n______ 8. It is the difference between net working capital and permanent
working capital.
K______ 9. It is the borrower’s financial resources.
G______ 10. It the borrower’s security pledge for the loan payment.
J______ 11. It is the current economic or business environment.
I______ 12. It is the borrower’s willingness to pay the loan.
H______ 13. It is the borrower’s ability to pay the loan.
L______ 14. It is the number of days it takes to collect cash from the sale of
the inventory.
M______ 15. It is the average number of days to sell its inventory.

NETWORKING CAPITAL 1. It is the difference between current assets and current liabilities.
WORKING CAPITAL MANAGEMENT 2. It is the proper administration of current assets and liabilities.
ABC analysis 3. This approach categorizes the inventories into three categories according to
their importance.
MATURITY MATCHING 4. In this type of working financing policy, the permanent working capital
requirements should be financed by long-term sources while temporary
working capital requirements should be financed by short-term sources
of financing.
TEMPORARY WORKING CAPITAL 5. It is the difference between net working capital and permanent
working capital.
PERMANENT WORKING CAPITAL 6. It refers to the minimum level of current assets required by a firm
to continue
the operations of the business and to cover up all current liabilities.
CASH MANAGEMENT 7. It involves the maintenance of a cash and marketable securities investment
level which enables the company to meet its cash requirements and at the
same time, optimize the income of idle funds.
INVENTORY 8. It is the stocks of the product the business is selling and the parts or raw
materials that made up the product.
CONSERVATIVE 9. In this type of working capital financing policy, some of the temporary working
capital requirements are financed by long-term sources of financing.
AGGRESSIVE 10. In this type of working capital financing policy, some of the permanent
working capital requirements are financed by short-term sources of financing.