INTRO TO FINANCE (PRELIM) Finance The art & Science of managing money. FUNCTION OF BUSINESS FINANCE: 1.

Allocation of Financial Resources Capital 2. Procurement of Funds. 3. Efficient & Effective Utilization of Financial Resources. BUSINESS FINANCE The art & Science of managing the Financial Resources of a business. Assets PRIMARY GOALS OF A BUSINESS: 1. To earn profit. 2. To increase its own value as an economic entity. Organization 3. To improve the quality of life in the community. INCREASING THE VALUE OF A BUSINESS: Dec. 19, 2011 GROWTH the increase in assets that appreciate in value, improved production capacity accompanied by increase in sales volume & increase in owners equity. STABILITY the ability to weather the ups & downs in the economy or its ability to continue operations despite the anticipated risks in a business. OWNERS EQUITY the difference between total asset & total liabilities of an entity. Also called NET ASSETS or NET ASSET VALUE (NAV). EFFICIENT UTILIZATION OF FINANCIAL RESOURCES financial resources are actually being used for what they have been intended. Proper/equal distribution EFFECTIVE UTILIZATION OF FINANCIAL RESOURCES financial resources are used towards the attainment of predetermined objectives. PORTFOLIO INVESTMENT (PORTFOLIO) aggregate of assets held as investment by an organization or individuals. ACTIVITY OF A FINANCIAL MANAGER 1. Financial Planning & Analysis 2. Managing the firm s assets 3. Managing the firm s liabilities & owners equity. FORMS OF BUSINESS ORGAANIZATION Is a form of organization SOLE PROPRIETORSHIP where there is only one owner, the proprietor. PARTNERSHIP Is an association of two or more persons who bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves. CORPORATION Is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence, ADVANTAGES & DISADVANTAGES OF SOLE PROPRIETORSHIP ADVANTAGES: 1. It is easy to organize 2. Decision can easily be made inasmuch as they are made by the owner himself. 3. Financial operations are not complicated 4. The owner is entitled to all the profits his business realizes. CONTROLLER: 1. Planning for control w/c includes budgeting. 2. Reporting & interpreting results of operations 7 systems installation. 3. Evaluation of objectives, policies & procedures & consulting w/ all segments of management regarding the same. 4. Tax Administration & government reporting. 5. Protection of assets. 6. Economic Appraisal TREASURER: 1. Determination of financial requirements & procurement of funds. 2. Cash management, banking, custody of funds & foreign exchange problems. 3. Investor Relations 4. Corporate Investment 5. Credit & Collections 6. Insurance 7. Employees benefits

DISADVANTAGES: 1. Limited ability to raise capital. 2. Unlimited Liability 3. Limited ability to expand 4. Business is entirely a responsibility of the owner. 5. Net income is subject to tax regardless of whether it is withdrawn or not. ADVANTAGES & DISADVANTAGES OF PARTNERSHIP ADVENTAGES: 1. It is easy to form. 2. Flexibility of operation 3. It is expected to be operated more efficiently. 4. Partners are expected to have great interest in the operations. DISADVANTAGES: 1. Partners have unlimited liability for partnership debts. 2. It has limited life because it can easily be dissolved. 3. Limited ability to raise capital 4. Net income is subject to tax whether distributed or not. ADVANTAGES & DISADVANTAGES OF CORPORATION ADVNATAGES; 1. It has a legal capacity to act as a legal unit. 2. It has continuity of existence. 3. Management is centralized in the board of directors or trustees. 4. The creation, organization, management & dissolution process are standardized. 5. Shareholders have limited liability. 6. Shareholders are not general agents of the corporation, 7. Shareholders can transfer their shareholdings without the consent of other shareholders. 8. It has the ability to raise more capital. 9. Its ability to raise more capital makes feasible gigantic financial ventures. 10. Stockholders are taxed only on their shares of distributed earnings. DISADVANTAGES: 1. It is subject to greater degree of governmental control & supervision. 2. Its cost of formation & operation is relatively high.

3. Its formation & management are relatively complicated. 4. It is subject to higher income tax rate. 5. It has limited power. 6. It is possible for the board of directors to abuse its powers.