BUSINESS

FINANCE
 Learning Objectives:

• Describe the Significance and Functions of

Business Finance

• Recognize the Importance of Finance in a

Business Organization;

• Identify and Explain the different financial

institutions and financial markets; and

• Discover the Functions and Importance of

Financial Intermediaries
Nature of Management
 Management: Art or Science?
• According to the Merriam-Webster Dictionary,

• Science is the knowledge about or study of the

natural world based on facts learned through

experiments and observsation while Arts is a skill

acquired by experience, study, or observation.
 Understanding Business

Business is an organization or
economic system where goods
and services are exchanged for
one another or for money.

 It is any lawful economic activity concerned

with production and for distribution of
goods and services for profits.
 Business

Commerce
Industry
Services

Trading
Buy & Sell
Merchandising Genetic
Marketing Extractive Finance
Manufacturing Recreation
Construction
Personal
 Forms of Business
SOLE PROPRIETORSHIP
A business owned and operated by one person only.
(Known as the simplest business form).
Advantages Disadvantages
1. Ease of Information 1. Unlimited Liability- The
2. Ownership of all Profits owner is personally liable for
3. Low- Start Up Costs and the obligations of the
Low Operational business including any
Overhead actions of the employees
4. Few Regulations representing the business.
5. No Corporate Income 2. Limited Life- When owners
Taxes. It is being die the business will die as
declared on the owner’s well.
individual income tax 3. Difficulty in Raising Capital-
return Usually business loan is
used for capitalization.
4. Initial Sources of Funds are
from personal savings for
start up business.
 Partnership
Advantages
1. Synergy. There is a clear
potential for enhancement of This is a business owned by
values resulting from two or
two or more persons.
more individuals combining
strength. They Bind themselves to
2. Partnership may be subjected
contribute money, property,
to a fewer regulations than
corporations or industry into a common
3. Relatively easy to form
fund with the intention of
4. There is a stronger potential of
access to greater amounts of dividing the profits among
capital
themselves.

Disadvantages
1. Unlimited Liability- General partners are individually
responsible for the obligations of the business,
creating personal risk.
2. Limited Life- A partnership may end upon death or
withdrawal of a partner.
3. There is a real possibility of conflict or disputes
between partners which may lead in dissolving the
partnership.
Corporation
 This is a business whose capital may be divided into shares of
stock owned by several people called shareholders or
stockholders. It has rights and liabilities separate from the
owners.
Advantages
• Unlimited Commercial Life- The corporation is an entity of
its own and does not dissolve when ownership changes.
• Greater Flexibility in raising capital through the sale of
stock.
• Ease of transferring ownership by selling stock
• Limited Liability- This limited liability is probably the
biggest advantage to organize as a corporation.

Disadvantages
• Regulatory- Corporations are typically more closely monitored
by governmental agencies, including Bureau of Internal
Revenue (BIR), Securities and Exchange (SEC) as to
compliance with regulations which can be costly.
• Income is subject to double taxation- corporations pay through
corporate income tax returns and owners personals income tax
returns for the dividend received from the corporation.
 Cooperative
This is a business whose capital is owned by
several people. It is governed on the
principle of one member, one vote.

Cooperatives play a critical role in building

community wealth.
 Kinds of Business

Commerce
These are businesses that are
engaged in the buying and selling of
goods and services.

Sari-S
ari Sto
r e

Peddlers
 Industry
These are businesses that are mainly concerned with
production.

Consumer’s Goods-goods that are intended for consumption

for consumer’s satisfaction.
Producer’s Goods- goods that are produced
intended for use of business and industry also
called intermediate goods.
 Classification of Industry

• Genetic Industry- businesses involved in fish

culture, agriculture and forestry.
• Extractive Industries- businesses involved in
extraction from natural resources which include
mining, hunting, and lumbering
• Manufacturing Businesses- businesses that
convert raw materials into finished products.
• Construction Industries- these are
businesses that are engaged in
building infrastructures.
 Services
These are the businesses that sell
services buyers.
• Recreation such as television, radio
stations, movie houses and theaters.
• Personal such as barber shops,
parlors, restaurants, and the like.
• Finance such as insurance
companies, and financing institutions.
 Business Finance

 Is defined as art and science of management, creation,

and study of money, banking credit, investments, assets and
liabilities that make up financial system.

 It involves the administration of the company’s

Resources and Capital.

 It is a way of obtaining capital to support

business operations and obtaining capital for
the Operational expansion.

 It can be thru the form of debt (liabilities from

the creditor or lender) or equity (investor’s
capital).
 Categories of Finance
Public Finance- It is the branch of
economics which assesses the
government revenue and government
expenditure of the public authorities and
the adjustment of one or other to achieve
desirable effects and avoid undesirable
ones.

Private Finance- This category deals with

the area of general finance not classifies
under public finance.
 Personal Finance
 Finance for Non-Profit Organization
 Business Finance
BUSINESS FINANCE
FUNCTIONS:
 Financial Intermediaries
Financial Intermediaries are financial institutions such as banks,
building societies, insurance companies, investment banks, or
pension banks.
It offers a service to help an individual/firm to save or borrow
money. A financial intermediary helps to facilitate the different
needs of lenders and borrowers.

Examples of Financial Intermediaries

 Insurance Companies- A business that provides
coverage, in the form of compensation resulting from
loss, damages, injury, treatment or hardship in
exchange for premium payments. 
  Financial Advisers
offer specialist advice on your behalf.

 Credit Union
Are informal types of banks which provide
facilities for lending and depositing within a
particular community
  Mutual Funds/Investment Trust
A mutual fund is a type of financial vehicle
made up of a pool of money collected from
many investors to invest in securities such as
stocks, bonds, money market instruments, and
other assets.
THANK YOU