BUSINESS FINANCE (ABM 004)

MODULE 2
MAIN CONCERNS OF FINANCE:
1. Resource Allocation- the process of identifying all your available resources—
whether it's labor or monetary—for a project and then strategically assigning them
to tasks that enable them to do their best work.
2. Resource Management- the process by which businesses plan, schedule, and
allocate resources in order to achieve the highest organizational value.
3. Resource Acquisition- focuses on defining the needs for the project, and
obtaining the right resources for the team and other resources and tools available
to manage the effort.

 Financial Management - the planning, directing, monitoring, organizing, and

controlling of the monetary resources of an organization.
 Financial Management - to maximize the company’s wealth.
 Finance - a branch of economics concerned with resource allocation, resource
management, resource acquisition and investment.
 Public Finance- government
 Private Finance- corporations
 Personal Finance- individual
 Behavioral Finance - to learn about the more “human” side of a science
considered by most to be highly mathematical.
 Minimize Cost- reducing expenditures on unnecessary processes.

POSITIONS IN THE FINANCE DEPARTMENT:

1. Chief Financial Officer- provides both operational and programmatic support to
the organization. They report directly to the President/ Chief Executive Officer
(CEO) and directly assist the Chief Operating Officer (COO) on all strategic and
tactical matters.
2. Comptroller- overseas the daily accounting operations of the business.
3. Treasurer- responsible for corporate liquidity, investments, and risk management
related to the company’s financial activities.
4. Internal Auditors- monitor and evaluate how well risks are being managed.

MODULE 3
FUNCTIONS OF FINANCIAL MANAGER:
1) Financing
2) Investing
3) Operating
4) Dividend Policies

KEY ASPECTS IN FINANCING:

 Capital Structure- how much of your total assets are financed by debt and how
much is financed by equity.
 Finance by Debt- they burrow money from lenders or investors with a promise of
repaying the burrowed amount.
 Finance by Equity- involves raising funds by selling shared or ownership stakes
in a company to investors.
KEY ASPECTS IN INVESTING:
 Investment strategy- risk tolerance
 Research and Analysis- need to research and analyze the company your
investing for. Financial managers conduct extensive research and analysis of the
market, industry and investment opportunities.
 Portfolio Construction/Management- based on the investment strategy, they
construct portfolio by selecting specific assets such as stocks, bonds,
commodities, funds, real estate (asset allocation). They use concept of
diversification. (Diversification- allocating of capital in a way that reduces
exposure to risk.)
 Adaptation and Rebalancing- rebalancing of asset allocation and making of
tactical shift. If the market condition changes, they adopt it to keep up with the
market.
 Execution of Trades- execute trades in behalf of your client.
 Risk Management- risk is about uncertainty. Diversification and hedging is one
example of risk management. (hedging- an investment position intended to offset
potential losses or gains that may be incurred by a companion investment.)
 Performance Monitoring- you compare the actual performance based on the
past.
 Compliance and Regulation- you need to comply on the set of rules and laws
given to you. You need to adhere those company standards and disclose relevant
information to your clients. You should also maintain appropriate records and
transparency.
KEY ASPECTS IN OPERATING:
 Budget and Planning- develops budgets and plans if they coordinate with other
departments to know the financial needs.
 Financial Analysis- they analyze companies through examining financial
statements.
 Cash flow Management- monitors the organization cash flow by making sure
that there is enough cash available to cover daily needs, expenses, and
management.
 Capital Expenditure Management- managers think if “kaya pa ba mag invest ng
another structure?”. If there is a potential return. They also considers
organization’s long term financial stability.
 Financial Reporting- they prepare and present financial reports for stakeholders.
They also report to management, investor, and other regulatory authorities to
check if it’s right. This is also the overview of the financial health of the
organization/company.
 Risk Management- same as risk management in investing.
 Financial Compliance- they ensure that you are complying to banking
regulations and financial laws.
 Financial Decision making- to provide financial insights and recommendation
for stronger financial decision making. They also evaluate potential risk. The
higher the risk, the higher the return.
 Cost Control- to optimize the expenses in the company that will lead to financial
efficiency or stabilization.
 Relationship Management- you need to be good at interaction with your
stakeholders.
DIVIDEND POLICIES:
 Profit Allocation- it computes or measure the financial managers if how much
they should allocate and retain. Balance between dividends and investments.
 Shareholder Expectation- 1.income oriented- investors want the company to pay
them regularly or they prefer regular dividend payments. 2.growth focused- they
reinvest for bigger profit.
 Legal and Regulatory Constraints- they must comply on legal requirements.
 Financial Health and Stability- accessing of financial health on profitability,
cash flow, and liquidity. It also ensures the dividend payment does not affect the
laws of the company.
 Business Cycle and Industry Considerations- managers should know what to do
during periods of economic downfall.
  Access to Capital Markets- you should know the sources of your capital to
access your company effectively.
 Tax Implications- you should evaluate different tax.
 Communication with Stakeholders- same with relationship management.
(ALWAYS THE TRANSPARENCY)

ROLES OF FINANCIAL MANAGER:

1. Raising of Funds- to secure necessary financial resources for companies growth.
2. Allocation of Funds- the funds should be allocated in such a manner that they are
optimally used.
3. Profit Planning- refers to proper usage of the profit generated by the firm.
4. Understanding Capital Markets- it is the discretion of a financial manager on how to
distribute the profit.

MODULE 4

 Financial System- system that enable lender and burrowers to exchange funds.
Covers financial transactions and the exchange of money between investors,
lenders, and borrowers. It enables lenders and borrowers to exchange funds. They
play a crucial role in allocating resources, facilitate, financial transactions, and
provide financial services.
 Financial Markets- organized forums in which suppliers and users of various
types of funds can make transactions directly. It involves the buyers and sellers.
They issue new securities and existing securities. (ex: Phil Stocks Exchange, New
York Stock Exchange)
 Financial Institutions- intermediaries that channel the savings of individuals,
businesses, and governments into loans or investments. They collect deposits,
provide loans, offer insurances, and other financial activities. (ex: BPI, BSP(phil)
and Federal Reserve(US))
 Private Placements- sale of a new security directly to an investor or group of
investors. The investors in this placement is more knowledgeable.
 Initial Public Offering (IPO)- this is open to general public
 Financial Instruments- real or a virtual document representing a legal agreement
involving some sort of monetary value. These can be securities like corporate
bonds or equity like shares of stocks. It is a tool or contract that represent a
specific value or financial right. (ex: bond, stocks, mutual fund)
MAJOR FINANCIAL INSTRUMENTS:
 Stocks- they represent ownership in a company.
 Bond- a loan made by an investor to a borrower.The issuer of bond
will promise a payment in a specific period of time. (may be
government or corporate)
  Mutual Fund- it includes many investors and a fund manager. It is an
investment fund that pools money from many investors to purchase
securities.
 Suppliers of Fund/Lenders- the holders of financial asset.
 Demanders of Fund/Borrowers- the users of financial asset/the makers of
financial liabilities and equity instruments.
 Method of Transferring Funds:
 Direct Finance- lending by ultimate borrowers with no intermediary
(ex: stock markets, corporate bonds, govnt bonds)
 Indirect Finance- lending by an ultimate lender to a financial
intermediary that then relends to ultimate borrowers. (ex: commercial
banks, mutual fund)

MODULE 5
 FINANCIAL MARKET
 Money Market- a venue wherein securities with short-term maturities
(1 year or less) are sold.
 Capital Market- securities with long-term maturities are sold. The
key capital market securities are bonds and both common stock and
preferred stocks.
 Primary Market- which securities are initially issued; the only market
in which the issuer is directly involved in the transaction.
 Secondary Market- which preowned securities (those that are not
new issues) are traded.
 FINANCIAL INSTITUTIONS
 Commercial Banks- individuals deposit funds in this institution,
which use the deposited funds to provide commercial loans to firms
and personal loans to individuals.
 Insurance Companies- pool the payments of individuals and invest
the proceeds in various securities until the funds are needed to pay off
claims by policy holders.
 Mutual Funds- group of investors investing in a diversified portfolio
managed by a fund managers.
 Pension funds- receive payments from employees and invest the
proceeds on their behalf.
 Others- Government Service Insurance System (GSIS) and Social
Security System (SSS)
 FINANCIAL INSTRUMENTS- when a financial instrument is issued, it gives
rise to a financial asset on one hand and a financial liability or equity on the other.
 Financial Assets:
1. Stocks- they represent ownership in a company. The received
share in a company profit is called dividends.
2. Bonds- a loan made by an investor to a borrower.The issuer of
bond will promise a payment in a specific period of time. (may be
government or corporate)
3. Savings Account- a type of asset offered by banks. You are
lending money to the bank, they keep it, and make it a loan for the
borrowers.
4. Mutual Funds- it includes many investors and a fund manager. It
is an investment fund that pools money from many investors to
purchase securities.
5. Real Estate Investments- It has value that can appreciate over
time. It is defined as the land and any permanent structures, like a
home, or improvements attached to the land, whether natural or
man-made.
 6. Cash
7. An equity investment of another entity
8. Notes Receivable
9. Loans receivable

 Financial Liability:
1. Loans-
2. Notes Payable
3. Bonds Payable

 Debt:
1. Bonds- an instrument of indebtedness.
2. Treasury Bond and Bills- issued by ph government
3. Corporate bonds- issued by the publicly listed companies.

 Equity:
1. Stocks- an instrument of ownership
2. Preferred stocks- has priority over a common stock in terms of
claims over the asset of a company.
3. Common stocks- the holders of these are the real owners of the
company. It can also be referred to as a "voting share". Common
stock usually carries with it the right to vote on business entity
matters, such as electing the board of directors, establishing
corporate objectives and policy, and stock splits.