SENIOR HIGH SCHOOL

Republic of the Philippines

Department of Education
NATIONAL CAPITAL REGION
Misamis Street, Bago-Bantay, Quezon City

UNIFIED SUPPLEMENTARY LEARNING MATERIALS

(USLeM)

LEARNING AREA
 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

DEVELOPMENT & EDITORIAL TEAM:

Writers: LEA G. CALISO

Illustrators:
Layout Artists:
Content Editors:
Language Editors:
Management Team:
Regional Director : Malcolm S. Garma
SDS : Romela M. Cruz
CLMD Chief: Genia V. Santos
CID Chief :
Regional EPS (Subj.):
Regional LR Supervisor : Dennis M. Mendoza
SDO EPS (Subj.) :
SDO LR :
Regional Librarian :
Librarian II :

This is a Government Property. Not For Sale

(This is a Government Property. Not For Sale.) 2

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
MODULE 2 (Week 3&4)

LESSON 1:

Financial Planning Process, Budget

Preparation, and Working Capital
Management

EXPECTATIONS:
The Learners are able to…
 Identify the steps in financial planning process.
 Illustrate the formula and format for the preparation of budgets and projected
financial statement.
 Explain tools in managing cash, receivables and inventory.

Directions:
On the space provided, write TRUE if the idea being expressed is correct and FALSE
if otherwise.
_______ 1. A short-term financial plan serves as a strategic financial plan of the entity.
_______ 2. A budget is a tool that facilitates profit planning
_______ 3. A sales forecast is the most important assumption in preparing a budget.
_______ 4. A cash budget shows a projection of the cash inflows and outflows of the
entity for a given period of time.
_______ 5. Depreciation expense is included in the firm’s cash disbursement
projections.
_______ 6. Financial planning is an essential tool to help manage business operations.
_______ 7. A long-term financial plan is composed of a series of short-term financial
plans.
_______ 8. Profit planning allows a business to project its results of operations.

(This is a Government Property. Not For Sale.) 3

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
_______ 9. Acquisition of major capital assets is an example of an activity included in a
firm’s strategic financial plan.
_______ 10. Under the judgmental approach, a plug figure in the form of an external
financing needed is used to maintain the equality in a statement of financial
position.

II. - Choose the letter that corresponds to the best answer of the question

1. A finance manager was tasked to carefully monitor the entity’s cash balance for the
end of each quarter. A ____________ is the most appropriate tool for this goal.
a. Sales budget c. Cash budget
b. Budgeted income statement d. Budgeted statement of financial position
2. A projected income statement will reflect all of the following except:
a. Cash balance c. Cost of sales
b. Sales d. Operating expense
3. All of the following are advantages of preparing a budget except:
a. It forces managers to quantify plans and proposals
b. It provides a measure of performance evaluation
c. It forces cooperation and coordination among units in the organization
d. All are advantages of preparing a budget.
4. A long-term financial plan would most likely include all of the following except:
a. Acquisition of capital assets
b. Research and development for new projects
c. Sources of long-term financing
d. Cash budget for one year
5. Which of the following statements is true regarding working capital management?
a. There is a risk and profitability tradeoff in working capital management
b. A firm’s working capital is not essential in managing its operations
c. Cash, inventory, and long-term receivables are common working capital
components
d. All statements are true.

Directions: IDENTIFY what is being described in the following statement:

_________ 1. The one directly responsible to oversee accounting, cost analysis, and tax
planning.
_________ 2. It deals with the set of rules that an entity observes when conducting
business.
_________ 3. A subtype of secondary market, it is where banks and institutional traders
buy and sell various currencies on behalf of businesses and other clients.

(This is a Government Property. Not For Sale.) 4

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
_________ 4. A subtype of secondary market, it is where derivative securities are
purchased and sold.
_________ 5.A subtype of secondary market, where previously issued debt and equity
securities are sold and traded.

Choose the letter that answers the corresponding question.

1. Money performs all of the following functions except

a. Serves as an asset of the government
b. May be held as a store of value
c. Serves as a standard of value
d. Serves as a medium of exchange

2. In making sound financial decisions, the following concepts must be remembered

except
a. More value is preferred to less
b. The later the cash is received, the more valuable it is
c. Less risky assets are more valuable than or preferred to riskier assets
d. In terms of cash, delayed gratification is ignored

3. Banks in the Philippines are supervised and regulated by the

a. Bangko Sentral ng Pilipinas
b. Insurance Commission
c. Local government unit
d. Department of Finance

4. Which of the following are not thrift banks?

a. Savings and mortgage banks
b. Rural banks
c. Private development banks
d. Stock savings and loan associations

5. This role primarily rests on the financial manager of the business

a. Decisions concerning cash flows
b. Choosing what types of securities to issue to finance expansions
c. Deciding on how much cash or inventory the business should carry
d. All of the above

(This is a Government Property. Not For Sale.) 5

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

In this module, we will first discuss what the financial planning process is. Financial
planning is vital in the success of any business organization because it guides,
coordinates, and controls action undertaken by the organization in order to achieve its
objectives within a given span of time. This also provides quantitative measures that will
aid businesses towards assessing the viability of their goals and objectives.
The financial planning process begins with long-term or strategic financial plans
which are also used to develop short-term or operating financial plans and budgets.
Strategic financial plans (long-term) lay out the direction of the firm through intended
actions whose anticipated results are expected to produce an impact within the firm for a
period of five to ten years such as considerations on research and development for
existing and future products, expenditures for major capital assets and possibly long-term
sources of financing. This includes anticipated major decisions of the firm that requires
commitment of resources over a longer time period, results of which are very difficult to
reverse.
However, a long-term financial plan is generally supported by a series of short-
term financial plans. Short-term financial plans specify financial actions whose results or
impact are expected to occur for a shorter period of time which typically cover one to two
years. Inputs on short-term financial plans highlight the firm’s operations in the short-run
such as sales and production forecasts for a specific period. Outputs, on the other hand,
include operating budgets, cash budgets, as well as projected financial statements. Short-
term financial plans provide managers a picture of the entity’s anticipated results of
operations and resource allocation in the short-term.

First, we must discuss what profit planning is. This is a set of actions taken to achieve a
targeted profit level. Actions that are related to this include the development of an
interlocking set of budgets that sums up into a master budget. The profit planning projects
the firm’s results of operations and overall financial position for a given period of time, on
the basis of both historical information and assumptions about the near future.
Assumptions include estimating the future sales growth, cost of inventories among others.
The planning process involves a significant amount of what-if analysis that predicts what
happens to projected profits in different scenarios. When the planning is done correctly,
there will be increasing, expanding, and eliminating risks in the investment value.
However, the planning will only be effective if it is followed all throughout the given period
of time.

To go further in our discussion, we must first discuss and understand budgets.

WHAT IS A BUDGET?

(This is a Government Property. Not For Sale.) 6

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
A budget is used to forecast the financial results and financial position of an entity
for a future period. It is used for planning and performance measurement purposes,
which can involve spending for fixed assets, rolling out new products, training employees,
setting up bonus plans, controlling operations, and so forth. It is expressed in quantitative
terms and contains an estimated income statement for future periods. A complex
budget includes a sales forecast, the cost of goods sold and expenditures needed to
support the projected sales, estimates of working capital requirements, fixed asset
purchases, a cash flow forecast, and an estimate of financing needs. The master
budget contains a summary of the entire budget document, while separate documents
containing supporting budgets sums up the master budget and provide additional
detail to users.
TYPES OF BUDGETS
1. Master budgets – represents the overall plan for a given period of time. It is an
aggregation of all other lower level budgets in an organization.

2. Flexible budgets – allows for varying provisions based on a given level of

activity. It is usually prepared for the purpose of comparing actual with
budgeted results.

Common budgets prepared in a business:

 Sales budget
This is an outline of expected sales set by the management, usually for
a period of one year, monthly, or quarterly which features a breakdown of sales
each quarter and a number of units to be sold.

The projected unit sales information in the sales budget is directly from
the production budget, where the direct materials and direct labor created. The
sales budget is also used to give managers a general sense of the scale of
operations, for when they create the overhead the selling and administrative.
The total sales (net) listed in the sales budget are carried forward into the sales
line item in the master budget.

The basic calculation in the sales budget is to itemize the number of unit
sales expected in one row, and then list the average expected unit price in the
next row, with the total sales appearing in a third row. The unit price may be
adjusted for marketing promotions. If any sales discounts or sales returns are
anticipated, these items are also listed in the sales budget.

Accounts affected by sales are:

1. Cost of sales

(This is a Government Property. Not For Sale.) 7

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
2. Gross profit
3. Variable and fixed operating expense
4. To a large account:
 Depreciation expense
 Income tax expense

Factors in Preparing Sales Budget:

1. External Factors related topics link: https://www.clearpointstrategy.com/external-
factors-that-affect-a-business/
2. Internal Factors related topics link: https://pestleanalysis.com/internal-factors-affect-
business-organization/
Example:
ABC Company plans to produce an array of plastic pails during the upcoming budget
year, all of which fall into a single product category. Its sales forecast is outlined as
follows:
ABC Company
Sales Budget
For the Year Ended December 31, 20XX
Quarter 1 Quarter 2 Quarter 3 Quarter 4

Forecasted unit sales 5,500 6,000 7,000 8,000

x Price per unit P10 P10 P11 P11

Total gross sales P55,000 P60,000 P77,000 P88,000

Sales discounts & P1,100 P1,200 P1,540 P1,760

allowances

= Total net sales P53,900 P58,800 P75,460 P86,240

ABC's sales manager expects that increased demand in the second half of the year
will allow it to increase its unit price from P10 to P11. Also, the sales manager
expects that the company's historical sales discounts and allowances
percentage of two percent of gross sales will continue through the budget
period.

(This is a Government Property. Not For Sale.) 8

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
 Production Budget
refer to link: https://www.thebalancesmb.com/the-production-budget-an-example-393025

To compute:
Required Production = Expected + Target Ending– Beginning
in Unit Sales Inventories Inventories

 Purchases budget
Refer to link: https://www.accountingtools.com/articles/what-is-a-purchases-budget.html
Related link: https://www.csus.edu/indiv/p/pforsichh/accountinginfo/2/documents/Ch09InClassHandouts.pdf

The inventory purchases budget is calculated using the following formula:

Purchases = Cost of Sales + Ending Inventory – Beginning Inventory

CASH RECEIPTS BUDGET

Refer link: https://smallbusiness.chron.com/compute-budgeted-cash-receipts-26020.html
Related link: https://opentextbc.ca/principlesofaccountingv2openstax/chapter/prepare-financial-budgets/

Example:
Cash Receipts Schedule
October November December Total
Sales Forecast P 700,000 P 800,000 P 842,560 P 2,342,560

Cash Sales 140,000 160,000 168,512 468,512

Collections of
Accounts Receivable
One Month Lagged 168,000 192,000 360,000
Two Months Lagged 280,000 320,000 600,000
Other Cash Receipts 140,000 140,000 280,000
Budgeted Cash P 280,000 P 608,000 P 850,512 P 1,708,512
Receipts
Observe that the sales forecast for each month is critical in estimating the budgeted cash
receipts. Following the table, it should be noted that 20% of the month’s total sales are
cash sales thus, they are automatically considered as cash inflows for that month.
However, it should be noted that there is delay in balance is collected while the remaining
50% follows two months after the sale and the 20% becomes uncollectible.

(This is a Government Property. Not For Sale.) 9

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
CASH DISBURSEMENTS
Refer link: https://smallbusiness.chron.com/cash-disbursement-accounting-69985.html
Example:
Cash Disbursements Schedule
October November December Total
Purchases P 160,000 P 200,000 P 220,000 P 480,000

Payment of Purchases
on Account
Month of Purchase 48,000 60,000 66,000 174,000
One Month Lagged 64,000 80,000 144,000
Two Months Lagged 48,000 48,000
Rental Payments 5,000 5,000 5,000 15,000
Wages 20,000 20,000 20,000 60,000
Budgeted Cash P 73,000 P 149,000 P 219,000 P 441,000
Disbursements
Since both cash receipts and disbursement schedules were already prepared, we
are now ready to prepare the firm’s cash budget for the three-month period provided. ABC
requires that a minimum cash balance of P 50,000 is maintained at all times. The ending
cash balance for the month of September was P 10,000.

CASH BUDGET
Refer link: http://www.va-interactive.com/inbusiness/editorial/finance/ibt/cash_bud.html
Example:
Cash Budget
October November December
Cash Receipts P 280,000 P 608,000 P 820,512
Less: Cash Disbursements 73,000 149,000 219,000
Net Cash Flow P 207,000 P 459,000 P 601,512
Add: Beginning Cash 10,000 217,000 676,000
Balance
Ending Cash Balance P 217,000 P 676,000 P 1,277,512
Less: Minimum Cash 50,000 50,000 50,000
Balance
Required Financing
Excess Cash P 167,000 P 626,000 P 1,277,512

(This is a Government Property. Not For Sale.) 10

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
Working Capital Management
Related link: https://www.investopedia.com/terms/w/workingcapitalmanagement.asp
Working capital refers to the current assets used in the operations of the business. This
includes cash, accounts receivable, inventories, and prepaid expenses. The amount of
resources that a company sets aside to these working capital accounts can be reduced
by current liabilities such as trade accounts payable and accrued expenses payable.
The difference between these current assets and current liabilities used in the operations
of the business is net working capital.
Working Capital Management is the administration and control of the company’s working
capital.
The management of these accounts, both the current assets and the current liabilities is
important because these accounts deal with the day-to-day operations of the business.
Good management of working capital accounts allows the company to pay maturing
obligations on time. This helps in developing good business relationships with suppliers
and other vendors such as utility companies. Good management of working capital
accounts also relieves managers of unnecessary stress and gives them more executive
time to improve business operations.
Efficient management of working capital accounts can improve the earnings of the
business. This improvement in earnings can come from savings in financial costs and
minimizing possible impairment losses from inventories.

PERMANENT AND TEMPORARY WORKING CAPITAL

1. Permanent Working Capital Is the minimum level of current assets required by a
firm to carry-on its business operations given its production capacity or relevant
sales range.
2. Temporary Working Capital Is the excess of working capital over the permanent
working capital given its production capacity or relevant sales range.

There are three types of working capital financial policies management can choose from.
These are:
1. Maturity-matching working capital financial policy
This one is a hybrid between a working capital management policy and a working
capital financing policy.

Businesses generally follow this policy when they want their working capital to be less;
thereby utilizing or investing the money elsewhere.

Here, the current assets of the balance sheet are matched with the current liabilities and
less cash is kept in hand. This in turn, enables the rest of the finance to be used for
expanding business, increasing production scale, etc.

(This is a Government Property. Not For Sale.) 11

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

A sound working capital financing policy enables a firm to select a working capital
loan as per its needs.
2. Aggressive working capital financing policy
This policy, as the name suggests, is a high-risk one. Owing to the risk factors, returns
are also higher. To follow this, a business must minimize its current assets or the amount
of debt it’s owed to.
Here, there are no debtors- payments are collected in time and are eventually invested in
business. Creditors’ payments are delayed to the maximum. Doing so sometimes might
land up with possibilities to sell out company assets to clear debts.
This type of working capital policy is mostly followed by companies looking for brisk
growth.
3. Conservative working capital financing policy
Businesses with low-risk appetite are mostly inclined towards such a policy. In this policy,
credit limits are pre-set to a specific amount. Also, such policies refrain doing business
on credit with any debtor who defaults.
Generally, a conservative working capital policy is followed to keep the company assets
and liabilities in sync with each other, with the assets value on the higher side, in case of
sudden exigencies.

FINANCING WORKING CAPITAL

Refer link: https://www.fundingoptions.com/knowledge/working-capital-finance/
Working capital may be finance by:
1. Short-term financing such as loan from commercial bank
2. Long-term financing.
IMPORTANCE OF CASH TO WORKING CAPITAL
1. Generated cash is used to meet current obligation
2. Cash helps to increase the level of inventory resulted to minimal financing
3. More cash generated means efficient collection of receivables

FLOW OF OPERATING CYCLE

Operating cycle is the sum of days of inventory and days of receivables

https://www.yourarticlelibrary.com/economics/capital-formation/working-capital-definition-and-operating-cycle-
explained-with-diagram/41043

(This is a Government Property. Not For Sale.) 12

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

https://www.educba.com/operating-cycle-formula/

INVENTORY MANAGEMENT
 Identify the level of inventory in all business which allows for in continuity.
Production for smoothly running business. With also keep in mind that in business
has reduces the investment in raw materials—and minimizes reordering costs—
and thus increases cash flow. And also management sees that the production time
should be less. And also management see that the finished goods level should be
keep according market demand to avoid over production
 Inventory management involves the formulation and administration of plans and
policies to efficiently and satisfactorily meet production and merchandising
requirements and minimize costs relative to inventories.
 Effective inventory management becomes critical when the natures of the products
are either perishable or toxic.
 Proper inventory management involves the determination of reasonable levels of
inventories considering the size and nature of business.
 Maintaining too much inventories has costs such as or holding costs, possible
obsolescence or spoilage.
 Too low inventory can result to stock out, and eventually lost sales
 Days of inventory or inventory conversion period or average age of inventories, is
the average number of days to sell its inventories
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
Days in Inventory = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
Inventory Turnover = (𝐵𝑒𝑔.𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦+𝐸𝑛𝑑𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)/2
𝐴𝑣𝑒. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Days of Inventory = 𝐴𝑣𝑒. 𝐶𝑂𝐺𝑆 𝑝𝑒𝑟 𝑑𝑎𝑦

In a manufacturing company, there are three types of inventory:

(This is a Government Property. Not For Sale.) 13

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
a. Raw materials – these are purchased materials not yet put into production.
b. Work in Process – these are goods and labor put into production but not yet
finished.
c. Finished Goods – these are goods put into production and finished. These are
ready to be sold.

CASH MANAGEMENT
Cash Conversion Cycle also known as the net operating cycle, is the length of time it
takes for the initial cash outflows for goods and services purchased (materials, labor, etc.)
to be realized as cash inflows from sales (cash sales and collection of receivables).
Cash Conversion Cycle = Operating Cycle – Days of Payable OR (Days of Inventory +
Days of Receivable) – Days of Payable
MANAGING THE CASH CONVERSION CYLE
• Is the ability of the management to reduce operating cycle days.
• To ensure shorter days operating cycle than days payable
• The quickness of completing the operating cycle is measured by the operating
cycle days.
STRATEGIES FOR MANAGING THE CASH CONVERSION CYCLE
1. Turn over inventory as quickly as possible without stock outs that result in lost
sales.
2. Efficiently manage the accounts receivable consistent with company’s credit
policies through:
A. Shorter credit terms.
B. Offer special discounts to customers who pay within a specified period.
C. Speeding up the mailing time of payments from customers to the firm
D. Minimizing the float time during collection
3. Reduce manage mail, processing, and clearing time when collecting from
customers and to increase them when paying suppliers.
4. Slowly pay the accounts payable without damaging firm’s credit rating.

RECEIVABLE MANAGEMENT
 Accounts receivables spring out of the need to sell merchandise.
 An excellent business proposition is to generate sales without offering credit facility
to customers. However, this concept is theoretically sound, but not sustainable.
 Credit management strategically defines the quality of account receivables
collection.
 The collectability of accounts receivables depends largely on the quality of
customers. The quality of customers depends on the standards or credit policies
set up and used by an organization.
When a company sells its goods or production on credit base that has possibility to make
bad debts or may be risk to not giving money on time, the management should decide
how to control bad debts that timely require its funds. If a company do proper debtors

(This is a Government Property. Not For Sale.) 14

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
management, it provides a very good condition for the management to control company
credit policy, length of credit period, collection policy etc. Then, the accomplishment of
debtors management helps for easy flow of cash in business.
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
Days of Receivable = 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
Receivable Turnover = (𝐵𝑒𝑔.𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒+𝐸𝑛𝑑 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒)/ 2
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
Days of Payable = 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
Payable Turnover = (𝐵𝑒𝑔.𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒+𝐸𝑛𝑑 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒)/ 2

TIPS

 Financial planning process begins with long-term or strategic financial plans used
to develop short-term or operating financial plans and budgets.
 A budget is used to forecast the financial results and financial position of an entity
for a future period.
 The two types of budgets are the master budget and flexible budget.
 Common budgets prepared in a business:
 Sales budget
 Production budget
 Purchases budget
 The cash receipts budget is focused on all cash inflows expected by the firm for a
given period of time.
 Cash disbursements shows possible outflows or uses of cash for a given time
period.
 A cash budget is a budget or plan of the combined expected cash receipts and
disbursements.
 Working capital refers to the current assets used in the operations of the business.
 Working Capital Management is the administration and control of the company’s
working capital.

(This is a Government Property. Not For Sale.) 15

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
 Days in Inventory = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
 Inventory Turnover = (𝐵𝑒𝑔.𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦+𝐸𝑛𝑑𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)/2
𝐴𝑣𝑒. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
 Days of Inventory = 𝐴𝑣𝑒. 𝐶𝑂𝐺𝑆 𝑝𝑒𝑟 𝑑𝑎𝑦
 Cash Conversion Cycle = Operating Cycle – Days of Payable OR (Days of
Inventory + Days of Receivable) – Days of Payable
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
 Days of Receivable = 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
 Receivable Turnover = (𝐵𝑒𝑔.𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒+𝐸𝑛𝑑 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒)/ 2
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
 Days of Payable = 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
 Payable Turnover = (𝐵𝑒𝑔.𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠
𝑃𝑎𝑦𝑎𝑏𝑙𝑒+𝐸𝑛𝑑 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒)/ 2

Steps in financial planning Process.

https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.ouryclark.com%2Fresource-library%2Fquick-
guides%2Ffinancial-services%2Ffinancial-planning-a-six-step-process.html&psig=AOvVaw1-
EBTPFhOWceklq6D74tVs&ust=1596041858870000&source=images&cd=vfe&ved=2ahUKEwjSnNCxtfDqAhWLSJQKHb
vRBf4Qr4kDegUIARCxAQ

(This is a Government Property. Not For Sale.) 16

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.slideshare.net%2Fgayporkkkkkk%2Foct-14-ecd-
lecture-7-financing-the-business-ii-
student1&psig=AOvVaw14dPGB0tWfph7vPSCRRq5B&ust=1596042382119000&source=images&cd=vfe&ved=0CA0Qjh
xqGAoTCMjZ2sK38OoCFQAAAAAdAAAAABDYAQ

Directions: Answer the following questions:

1. What are the characteristics of an Effective planning?
2. What is budget?
3. What is the importance of a budget?
4. What will happen if the budget is not met?

Directions:
Since it is very relevant in today’s generation, technology is viewed as an essential tool
to ease work for people. Businesses, in turn, prefer to use a software or program to aid
in their budget preparation. Provide at least two (2) popular budgeting soft wares. Briefly
discuss their features and compare which among them is preferable to you.

(This is a Government Property. Not For Sale.) 17

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

Answer the following case analysis.

1. Below are the summarized financial information of Jollibee Foods Corporation for
2013 and 2012.
2013 2012

Revenue 80,282,769,199 71,059,039,154

Cost of Sales 65,284,763,064 58,435,498,743

Gross Profit 14,998,006,135 12,623,540,411

Expenses 9,066,909,740 8,278,522,626

Operating Income 5,931,096,395 4,345,017,785

Interest Expense 152,920,028 206,012,700

Income before Taxes 6,245,514,598 4,861,699,703

Income Tax Expense 1,522,708,071 1,149,704,051

Net Income 4,722,806,527 3,711,995,652

Gross Accounts Receivable- 3,128,358,963 2,714,763,623

Trade

Trade Inventories 3,509,791,192 2,616,182,585

Current Assets 18,384,176,985 15,623,201,915

(This is a Government Property. Not For Sale.) 18

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
Property, Plant, and 11,772,440,510 11,059,464,042
Equipment

Total Noncurrent Assets 27,642,457,128 26,144,928,795

Total Assets 46,026,634,113 41,768,130,710

Trade Accounts Payable 6,006,639,836 4,717,064,438

Current Liabilities 15,618,612,677 16,621,233,643

Noncurrent Liabilities 7,047,081,359 3,415,595,039

Total Liabilities 22,665,694,036 20,036,827,682

Total Equity 23,360,940,077 21,731,303,028

Operating Cash Flows 9,219,500,197 8,237,963,925

Compute for the following financial ratios for 2013 and 2012:

1. Accounts Receivable Turnover Ratio

2. Inventory Turnover Ratio
3. Accounts Payable Turnover Ratio
4. Days’ Receivable (use 360 days in a year)
5. Days’ Inventories (use 360 days in a year)
6. Days’ Payable (use 360 days in a year)
7. Operating Cycle

(This is a Government Property. Not For Sale.) 19

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

Directions:
Download the financial statements of Jollibee Foods Corporation and answer the
questions provided below.

1. What is the impact of the working capital management to the profitability and risks based
on your analysis of Jollibee Foods Corporation financial statements?

2. What types of working capital policies is JFC using based from your analysis of its
financial statements?

3. What impact can you observe this strategy has to JFC’s profits?

4. Is there any effect on the riskiness such as liquidity or solvency?

INSTRUCTION: On the space provided, write TRUE if the idea being expressed is
correct and FALSE if otherwise.

_______ 1. A financial plan serves as the roadmap for a business organization

_______ 2. Projection of the firm’s operation results, along with short-term resource
needs form part of a short-term financial plan.
_______ 3. A budget is a qualitative plan for a business organization.
_______ 4. A budgeted income statement shows the projected resources and obligations
of a firm over a specific time period.
_______ 5. When an entity’s net working capital is positive, current liabilities exceed
current assets.

II. Identify the term/s being described by each statement.

________________ 1. Refers to the firm’s current assets which represents a portion of
investment that circulates in one form to another in conducting the ordinary course of
business.
________________ 2. Begins from the time goods for sale are manufactured to the
eventual collection of cash from the sale of these goods.

(This is a Government Property. Not For Sale.) 20

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________
________________ 3. A plan expressed in quantitative terms, which emphasizes the
resource use and resource allocation of an entity over a specified period of time.
________________ 4. The most common method used in projecting the statement of
financial position.
________________ 5.A prediction of the firm’s sales over a specific period, based in
external and internal information.
________________ 6. Lays out the direction of the firm through intended actions whose
anticipated results are expected to produce an impact within the firm for a period of five
to ten years.
________________ 7. It sets our road maps intended to guide, coordinate, and control
action undertaken by the firm in order to achieve its objective.
________________ 8. Shows the planned inflows and outflows of cash in the entity for a
given period of time.
________________ 9. It specifies financial actions whose results or impact are expected
to occur for a shorter period of time, typically one to two years.
________________ 10. Represents the overall plan of an organization for a given period.
It is an aggregation of all lower-level budgets in the organization.

(This is a Government Property. Not For Sale.) 21

 UNIFIED SUPPLEMENTARY LEARNING MATERIALS
Grade 12 LEARNING AREA
BUSINESS FINANCE
__________________________________________________________________________________

References:

https://www.investopedia.com/terms/b/bank-deposits.asp
https://www.thebalance.com/the-difference-between-stocks-and-bonds-417069
https://www.investopedia.com/mortgage/real-estate-investing-guide/
https://www.insularlife.com.ph/insurance-investment-guide-for-
filipinos#:~:text=When%20you%20pay%20your%20insurance,out%20due%20to%20unfortunat
e%20circumstances.
http://www.va-interactive.com/inbusiness/editorial/finance/ibt/cash_bud.html
https://www.investopedia.com/terms/w/workingcapitalmanagement.asp
https://www.fundingoptions.com/knowledge/working-capital-finance/
https://smallbusiness.chron.com/cash-disbursement-accounting-69985.html
https://smallbusiness.chron.com/compute-budgeted-cash-receipts-26020.html
https://opentextbc.ca/principlesofaccountingv2openstax/chapter/prepare-financial-budgets/
https://www.accountingtools.com/articles/what-is-a-purchases-budget.html
https://www.csus.edu/indiv/p/pforsichh/accountinginfo/2/documents/Ch09InClassHandouts.pdf
https://www.thebalancesmb.com/the-production-budget-an-example-393025
https://pestleanalysis.com/internal-factors-affect-business-organization/
https://www.clearpointstrategy.com/external-factors-that-affect-a-business/
https://www.accountingtools.com/articles/profit-planning.html
https://www.investopedia.com/terms/b/budget.asp
https://www.myaccountingcourse.com/accounting-dictionary/budget
https://www.accountingtools.com/articles/what-is-a-budget.html
https://www.accountingtools.com/articles/2017/5/17/sales-budget-sales-budget-example
https://bizfluent.com/how-4422623-calculate-cogs.html
https://www.planprojections.com/projections/inventory-purchases-budget/
https://www.bookstime.com/articles/cash-disbursement-journal
https://www.myaccountingcourse.com/accounting-dictionary/cash-disbursements-journal
https://www.myaccountingcourse.com/accounting-dictionary/cash-budget
https://www.bajajfinserv.in/what-are-the-types-of-working-capital-policies

Cayanan, A., & Borja, D. (2017). Business Finance (First ed.). Rex Bookstore.

Dela Cruz, A.L., Paril, A.J., Tang, A., Tugas, F. (2017).Business Finance.Chapter 4:
Financial Planning, Tools, and Concepts 1, pp. 70-81, Chapter 5: Financial Planning,
Tools, and Concepts 2, pp. 88-100. Quezon City: Vibal Group, Inc.

Dy, D., Rodriguez, J., Rodriguez, R., Yusoph, A. (2016). Teaching Guide for Senior High
School Business Finance.Financial Planning Tools and Concept Part 2, pp. 139-150.
Quezon City: Commission on Higher Ed

(This is a Government Property. Not For Sale.) 22

23
(This is a Government Property. Not For Sale.)
ASSESSMENT CHECK YOUR UNDERSTANDING
PRETEST LOOKING BACK …
I 1. False 1. Controller
2. True 2. Corporate Governance
3. True
3. Currency exchange markets
4. True
5. False 4. Derivatives market
6. True 5. Security markets
7. True II 1. B
8. True 2. D
9. True
3. A
10. True
4. B
II 1. C 5. D
2. A Note: Other
3. D activities(research/essay) please
4. B
check on the output of the
5. D
POST TEST learner/students.
1. TRUE
2. TRUE
3. FALSE
4. FALSE
5. FALSE
II 1. Working Capital
2. Production Budget
3. Budget
4. Budgeted Statement of
Financial Position
5.Sales Budget
6. Long term budget
7.Financial plan
8. Cash Budget
9. Short term budget
10.Master Budget
__________________________________________________________________________________
BUSINESS FINANCE
Grade 12 LEARNING AREA
UNIFIED SUPPLEMENTARY LEARNING MATERIALS