Learning Resource Material 1

Lesson 1. The Nature and Aims of Business

 “To obtain financial freedom, one must be either a business owner, an investor, or both,
generating passive income, particularly on a monthly basis.” – Robert Kiyosaki
 ABOUT THE MODULE

This module includes the nature and scope of strategic financial management. It
presents the overview, definitions of strategic management.

In order for you to go effectively and efficiently with the module, these are some of the
things you should remember:

LESSONS. This icon reminds you the lesson proper. The needed information you
need to know.

LEARNING OUTCOMES. This icon represents the learning outcomes of the

module on what is expected from it.

REMEMBER. This is an icon that signifies an information that you should bear in
mind because this is a very important theory or knowledge.

ACTIVITY. An icon that you will find in the module that you need to answer. It
requires you to reflect on the concepts and theories presented in the module.

POST – TEST. This icon pertains to the post – test. You need to answer this and
submit to your instructor to measure the knowledge you gained in the module.
 Lesson 1. Nature and Aims of Business

Learning Outcomes

At the end of the chapter, you should be able to:

 To understand the basic concepts of business – its nature, aims, impact

and the fundamental aspects of business.

A. BUSINESS FINANCE DEFINED

Business Finance – is a branch of study concerned with the allocation, procurement and
efficient management of business capital so that a firm can maximize profit, add its value
and fulfill its social role. (by Bonneville, et. al)

It involves techniques of estimating and acquiring adequate capital from

alternative sources at the best possible terms for the users and their most profitable
employment in business operations.

B. COVERAGE OF BUSINESS FINANCE

1. The allocation of an adequate supply of capital for business needs;

2. The procurement of funds at the most favorable terms at least cost to business; and
3. The efficient management of capital for profit – maximization and increasing the value
of the firm.

C. WHAT IS BUSINESS?

Business – embraces every human activity, usually activated by the hope of profit,
whereby man’s wants and needs are supplied. (by Bonneville, et. al)

It refers to any lawful economic activity which is concerned with making goods
available as well as the rendering of useful services to those who want them. (by Miranda,
G.S.)

It is concerned with the production or distribution of goods or services for profit. (by
Medina, R.G.)
D. WHAT IS FINANCE?

Finance – deals with the principles, institutions, instruments and procedures involved in
making payments of all types in our economy. (by Miranda, G.S.)

E. KINDS OF BUSINESS:

1. Commerce – is derived from the Latin term “commercium” a combination of two (2)
root words: “com” – meaning together and “mercis” – signifying wares.

Commerce – as an economic activity, is concerned with the exchange of wares, goods or

merchandise, and thus, helps in the creation of place and time utilities. (by Miranda, G.S.)

These are businesses that have to do with the distribution of goods through various
channels from the procedures to the ultimate consumers.

Inclusion: trading, warehousing, transporting, insuring and financing in connection with

the transfer of goods.

Subdivision of trading business:

a. Retail trading business – is one which is engaged in by small traders who keep small
quantities of each of the different items of goods.

b. Wholesale trading business – is one which is engaged in by big traders who buy large
quantities of goods from producers and thus enjoy discount on large – scale
purchases.

2. Industry – refers to a special branch of productive work resulting in the production of

consumers’ goods and industrial goods.

 Consumers’ goods – are those which are intended for and used directly by the end
users/ consumers.

 Industrial goods – are those goods intended for use by other industries or for
commercial purposes.

Industrial businesses - are those that actually produce commodities either by

manufacture or by some definite treatment of materials, which may be used in their
original form, or from which marketable commodities can be manufactures. This kind of
business helps in the creation of form utility.

3. Business services – those business that offer/ sell/ cater important services to the
people and community. These are classified into:
 a. Recreation
b. Personal Service
c. Finance

F. THE PUSPOSE AND AIM OF BUSINESS

Earning a Profit – is the direct aim of businessmen in venturing into business. Goods and
services are made available to the public and are sold to customers with sufficient mark
– up to cover operating expense, financing charges, income taxes or business taxes.

G. IMPORTANCE OF BUSINESS

1. It provides the goods and services needed by the people.

The existence of business brings about the conversion or transformation of raw

materials into finished products, the extraction of minerals from the bowels of the earth,
the utilization of machines as well as manpower, hence, without businesses, the economy
will suffer because the people will be denied of the goods they need and the essential
services will not be available.

2. It creates jobs and opportunities for employment.

Through the existence of businesses, job for people who are willing and capable
to work are being accommodated, especially nowadays that the government cannot
accommodate all or everybody in the government service.

3. It helps the governmental raises its revenues.

The existence and operation of business generates more income for the people
who shall in turn pay their taxes to the government, hence, increasing the level of
government revenues.

H. THE FREE ENTERPRISE SYSTEM

Free Enterprise System – is one of the characteristics of a capitalistic system of economy

wherein – everyone is free to work wherever and for whomsoever he chooses to go into
business for himself.

It is characterized by the presence of competition, which is desirable as long as it

is free and fair; and structured by cooperation – the interdependence of one business
from others.
I. THE FUNDAMENTAL ASPECT OF BUSINESS

Business creates opportunities for the development of individual skills and

abilities, which, when used effectively, means more goods and the upliftment of the
society as a whole.

J. THE IMPACT OF BUSINESS

1. Business enterprise is people. This means that without people, there would be no
business enterprise. This is because it is people who conceive, plan and organize,
capitalize and manage these business enterprises. Likewise, it is also people for whom
these business is conceived, planned, organized, provided with funds and managed
so that the wants and needs of people would be satisfied.

2. The wants and needs of people make business. The presence of unlimited wants and
needs of people for products and services that could in any way satisfy their needs
and wants necessities businesses that will provide such goods and services. The bare
necessities of people for food, clothing and shelter, their clamor for comforts and
convenience, leisure and pleasure – for all of these things, the production of goods,
provision of services and the exchange of goods through barter or purchase are
necessary, hence, there is a need for business to exist and operate.