Business

Finance
 Lord, we praise and glorify Your Holy
Name. Forgive us from our sins that
separate us from Your love. Thank You for
the gift of life, family, health and security.
Please guide us as we start this school year.
Grant us the enthusiasm to learn and acquire
knowledge from this subject. Bless our
families and our homes. All this we pray in
the name of Jesus Christ, our Savior. Amen.
Business
Finance
Learning Objectives:
 Demonstrate an understanding of financial concepts.
 Determine the roles of financial management.
 List down examples of financial institutions.
 Identify the importance of financial institutions and
financial markets in the society.
 Introduction to
Business Finance
 Finance
According to Gitman and Zutter, finance is
the art and science of managing money.
 Finance
According to Schall & Hally, finance is a
body of facts, principles and theories dealing
with raising and using of money by
individuals, businesses and governments.
 Finance
Finance is the study of how individuals or
businesses evaluate investment opportunities,
business proposals and business projects and
raise capital to fund them.
 Finance
 In the perspective of economics, finance is the
allocation of scarce resources which include
money.
 In the perspective of business, it is the function
of managing the operations that deals with
money matters.
 Financial Management
Financial Management covers the
planning, organizing, leading and
controlling of all financial activities of
an organization.
Roles of Financial
Management
1. Financial decisions and controls
2. Financial Planning
3. Capital Management
4. Allocation and Utilization of financial resources
5. Cash Flow Management
6. Disposal of Surplus
7. Financial Reporting
8. Risk Management
A financial manager
invests money …
1. in projects that are worthwhile.
2. in a new business venture or a new
manufacturing plant.
3. to expand already thriving business.
4. to train people to continue servicing.
Financial Instruments
Debt Instruments generally have
fixed returns due to fixed interest
rates.
Money Market Instruments
Money market instruments involve
short-term debt securities. A short-term
debt is due/demandable within one year
or less.
 Financial Instruments Basic Characteristics
Issued by Maturity Default risk
Treasury/
Treasury Bills Within one year Default free
Government
Financially sound
Commercial Papers 9 months Low
businesses
Banks or mutual No specific
Money Market Funds Low
fund companies maturity date
Banks, credit unions,
Consumer credit, credit card debt Varies Varies
finance companies
 Long-term Debts
In long-term debts, the interest rate
charge is higher than money market
instruments and is usually locked in over
the entire life of debt.
 Financial Instruments Basic Characteristics
Issued by Maturity Default risk
Treasury Notes Government 2, 5, 10 years Default free
Treasury Bonds Government 10 years or more Default free
Federal Agency Debt Federal Agencies 30 years Low
Municipal Bonds, Local
Local Governments 30 years High
Government Bonds
Corporate Bonds Corporations 40 years High
Equity Instruments have varied returns
based on the performance of the issuing
company. Returns from equity
instruments come from either dividends
or stock price appreciation.
A stock is a type of security that signifies
ownership in a corporation and
represents a claim on part of the
corporation’s assets and earnings.
 Financial
Basic Characteristics
Instruments
 Issued by corporations in exchange for units of ownership
 Has no maturity date
 Pays dividends when declared
Preferred Stock
 More risky than corporate bonds
 Has no voting rights
 Has preference over common stocks in asset liquidation
 Units of ownership in a public corporation
 Pays dividends when declared
 Owners are entitled to vote on the selection of directors and other important matters
Common Stock  In the event a corporate liquidation, claims of preferred stock holders take precedence
over common stock holders
 For the most part, common stockholders enjoy potential profits from the capital
appreciation of their stock
 Why invest in stocks?
 Stock investors are part owners.
 Stock investors benefit from growth
potential.
 Stock investors receive cash.
Financial Institutions
Banks
 Thrift Banks
These are deposit taking financial institutions that
also extend credit to the consumer market.

Examples: BPI, PS Bank, Metrobank, RCBC

 Commercial Banks
These are deposit taking financial institutions that
also extend credit to the retail and consumer
market.
 Universal Banks
These lend to multinational companies
with global presence.
 Investment Banks
These are known to successfully raise
funds for big corporations and
governments.
Non-Banks
 Leasing Companies
These are non-banks yet also extend credit or
financing to companies that need it for their
projects.
 Investment Companies
These are regulated by the Securities and Exchange
Commission and provide funding to companies or
raise funds thru bond issuances or initial public
offerings.
 Mutual Funds
These are collective investments or funds of small
investors pooled together and managed to be able to
reach maximum returns.
 Insurance Companies
These sell insurance coverage to provide guarantee
of compensation for specified death, illness,
accident, loss or damage to property in return for
payment of a premium.
 Private Equity Funds
These funds are managed by private fund managers
and private investors and hence are able to invest
more aggressively in the financial markets.
 Financial Institution Financial Institution
Lends funds Evaluation of Investment
1 2
FINANCIAL BUSINESS
DEPOSITOR
INSTITUTION ORGANIZATION
4 3
Financial Institution Financial Institution
Pays interest Return of Investment
Financial Markets
 Primary Market is a financial market in which
securities are initially issued. It is the only market
in which the issuer is directly involved in the
transaction.
 Secondary market is a financial market in which
pre-owned securities (those that are not new
issues) are traded.
 Money market is a financial relationship created
between suppliers and users of short-term funds.
 Capital market is a market that enables suppliers
and users of long-term funds to make
transactions.
Business
Finance
Mary Mother of the Good Shepherd.
Pray for us.

Jesus, You are my Lord.

My happiness lies in You alone.