PRINCIPLES OF BUSINESS FINANCE 1 (BF 4013)

PREPARED BY: MS SHAZLINA ABDUL JALIL @ MS SHAZ

GROUND RULES
1. Be On Time
2. Good/Positive Attitude
3. Phone Kept on Silent
4. Pay Attention!
5. Take Notes 
6. Ask/Stop me if you don’t understand/or if I go tooooo fast
7. Be happy and Don’t forget to SMILE

PLEASE ELECT CLASS MONITOR/ASSISTANT CLASS MONITOR

At the end of chapter, you should be able to

Identify the basic forms of business in Malaysia, and able to explain the respective strengths and
weaknesses
Identify, describe and explain the various financial statements that business produce.
Understand the difference between profitability and liquidity in businesses
Identify and explain the type of decision for companies’ business
Understand the trade financing and international business finance
COURSE STRUCTURE
Assessment Type Percentage

Report Writing- Case Study/Research Paper 25%

(*not finalized)

Test 25%

Final Exam 50%

COURSE OBJECTIVE
• Explain the sources, uses and management of finance
• Describe the regulatory requirements for financial statements
• Appraise an enterprise by analyzing its financial statements
• Evaluate the cost of capital of an enterprise
• Apply time value of money concept and basic investment appraisal techniques in the selection
of projects
 Basi

BUSINESS FINANCE? HOW cally its

T
MON O RAIS
E E
BUS Y FOR
INES
S
Study of financing and
investment decisions
made from theory to
practice

Making of decisions
about which
investment the
business should make
Management of
money and other
valuable assets
TYPES OF BUSINESS ENTITY- QUICK RECAP
Business
Entity/Companies

Sole Company
Proprietorship
 Single Owner Partnership
 Simple
Incorporation Private Public
 Easily dissolved  2 or more
 Small Capital individuals
 No Profit Sharing  Collective  No of shareholders  No of
 Owner controls Capital is between 2 and 50 shareholder 2
all activities  Sharing only to unlimited
decision  Shares can be sold  Shares can be
solely
making to other individuals sold to public
 Not listed in Bursa  Listed in Bursa
STRENGTH & WEAKNESSES OF BUSINESS ENTITIES
TYPES OF BUSINESS STRENGTHS WEAKNESSES
Sole Proprietorship • Easily formed and low incorporation cost • Unlimited liability
• Can solely enjoy the profit • Limited capital
• Have full authority of the business • Owner needs to give full
• Does not depend on other people commitment to the business
• Not many regulation to adhere to • Limited Life
• Can easily dissolve

Partnership • Easily formed • Unlimited liability

• Can bring other expertise
• Opportunity to increase capital
• Not many regulation to adhere to
• Partners can work together for the benefit
of the business
• Profits need to be shared
• Possibility of misunderstanding
among partners
• Rules to dissolve depends on
conditions

Company • Limited Liability • High corporate tax

• Can easily get large capital • Have to adhere to a lot of
• Ownership can be easily transferred government relationship
• No fixed ownership
 PRESENTATION OF ACCOUNTS
INCOME BALANCE SHEET CASH FLOW
STATEMENT
ASSETS DIRECT METHOD
REVENUE
LIABILITIES INDIRECT METHOD
EXPENSES
SHAREHOLDERS EQUITY
PROFIT/LOSS

Represents the revenues and
expenses and the net
income/loss of the business
activities for a specific period
of time
Reflect all assets owned by
the company and all
liabilities or claims owned by
the business for a specific
period of time
Statement which shows
how cash is generated
and used by business
entities for a period of
time
QUICK RECAP
List down and briefly explain items in
1. Income Statement
2. Balance Sheet
 PROFITABILITY VS LIQUIDITY
Profitability Liquidity
Profitability is the degree to which the company earns Liquidity is the ability to swiftly convert assets into
a profit cash.
Profitability is more important in long-term. Liquidity is less important in short-term.

AVAILABILITY OF PROFITS VS AVAILABILITY OF CASH.

Profit is the principle measure to assess the stability of a company and is the priority interest of shareholders.

A profitable company may not have enough liquidity because most of the funds in the company are invested into
projects, and a company which has a lot of cash or liquidity may not be profitable because it has not utilized
excess funds effectively.
ROLE OF BUSINESS FINANCE
• Assist in financing and investment decision.
• Methods of financing Success of business relies

}
Loan (debt) on how this decision is
Credit arrangements made
Investments on real assets and financial assets

The main difference between financial and real assets is that

financial assets are cash and securities, such as stocks and bonds,
whereas real assets represent tangible possessions, such as real
estate, production equipment and inventory. Generally, financial
assets are more liquid than real assets because they can be readily
converted to cash. Real assets take considerably more time to sell.
COMPANY DECISIONS
• Financing
• Investment
• Distribution Decision
FINANCING
 Decisions related to raising of finance.
 Involves various sources of finance
Can be short term or long Term

 A long term investment decision is called capital budgeting decisions which involve huge
amounts of long term investments and are irreversible except at a huge cost.
Short-term investment decisions are called working capital decisions, which affect day to day
working of a business. It includes the decisions about the levels of cash, inventory and
receivables.
What are the factors affecting Financing Decisions?
INVESTMENT
Simply, selecting the type of assets in which the funds will be invested by the firm is termed as
the investment decision. These assets fall into two categories:
Long Term Assets – Capital Budgeting
Selection of assets - whether existing or new on the basis of benefits that will be derived from it
in the future.
Analyzing costs and risk
Short-Term Assets – Working Capital Management
Through working capital management, a firm tries to maintain a trade-off between the
profitability and the liquidity.
What are the factors affecting Financing Decisions?
Distribution decisions
Relate to the distribution of profits earned by the organization.
The major alternatives are whether to retain the earnings profit or to distribute to the
shareholders.

What are the factors affecting Financing Decisions?

TRADE FINANCING
 Financing of international trade flows.
 It exists to mitigate, or reduce, the risks involved in an international trade transaction.
 Risks? Payment Risk, Country Risk, Corporate Risk
INTERNATIONAL BUSINESS
FINANCE
 The art of managing money on a global scale.
 Benefits:
1. Increased Revenue (Forex)
2. Decreased competition (depends on products/services chosen)
3. Learning new culture and expose company to new opportunities
4. Diversifying companies markets
ACTIVITY
Write everything you learn today in a mind map.