BUSINESS FINANCE

It refers to a place where the selling-buying

activity occurs to trade equity securities and
performs the function of channeling funds from
those who have a surplus of fund to those who
are in need of funds.
F I N A N C I AL
MA R K E T
Stocks and bonds are issued for medium and
long term periods.

CA P I T A L
MA R K E T
Financial securities traded for less than one year.
PR I M A R Y
MA R K E T
where corporation can issue new shares
of stocks.
SE C O NDARY
MA R K E T
intermediaries that channel the savings
of individuals, businesses, and
governments into loans or investments.
F I NANC I AL
I NS T I TUT I ONS
Private Placements - the sale of a new security
directly to an investor or group of investors.

P RI VATE
P L ACE ME NT
Legal agreements between the holder
and the issuer that give the holder the
right to receive payment with interest
or a right to share in company’s earning
or dividends from the issuer
F I NANC I AL
I N S T RUME NT S
1.securities which are readily transferable and
instruments such as loans and deposits,
where both borrower and lender have to
agree on a transfer. (Savings Account, Time
deposits)
F I NANC I AL
I N S T RUME NT S
Public Offering - The sale of either bonds or
stocks to the general public.

PUBL I C
OF F ER I NG S
Public Offering - The sale of either bonds or
stocks to the general public.

PUBL I C
OF F ER I NG S
 The first offering of stock

I N I T I AL
OF F ER I NG S
 Financial Instruments
When a financial instrument is issued, it gives rise to a financial Asset on one
hand and a financial liability or equity instrument on the other

A Financial Asset is any asset that is:

Cash
 An equity instrument of another entity
 A contractual right to receive cash or another financial asset from
another entity.
 A contractual right to exchange instruments with another entity under
conditions that are potentially favorable.

Example :Notes Receivable, Loans Receivable, Investment in Stocks,

Investment in Bonds
It is an area of finance that focuses on the handling
and management of financial of financial resources
of a business organization and divided into three
divisions - financial management, capital market, and
financial investment.
B S N S S
F N N E
B U S I N E S S
F I N A N C E
It focuses on capital budgeting
decision or investment decision on the
acquisition of assets and its
corresponding financing scheme.
F N N C I A L
M N G M N T
F I N A N C I A L
M A N A G E M E N T
 Financial management is concerned
with procurement, allocation and
control of financial resources of a
business entity.
To ensure regular and adequate
supply of funds.
To ensure adequate returns to the shareholders through
capital gains which is dependent upon the earning
capacity and the market price of the share
To ensure optimum funds utilization at least cost
To ensure investment of funds in safe ventures so
that adequate rate of return can be achieved
To design a sound capital structure by maintaining a fair
composition of capital through balance between debt and
equity
Assets = Liabilities + Owner’s
Equity.
What is Financial Markets?

Financial Markets – organized

forums in which the suppliers and
users of various types of funds can
make transactions directly
Financial Market
A Financial Market refers to a place where
the selling-buying activity occurs to trade
equity securities and performs the
function of channeling funds from those
who have a surplus of fund to those who
are in need of funds.
The typical financial market, includes the
following:
1.Capital market- stocks and bonds are issued
for medium and long term periods.
2. Money market – financial securities traded
for less than one year.
3. Primary Market – where corporation can
issue new shares of stocks.
4. Secondary Market – where financial
securities are traded between or among
Money Markets vs. Capital Markets

• Money markets are a venue wherein securities with short-term

maturities (1 year or less) are sold. They are created because some
individuals, businesses, governments, and financial institutions have
temporarily idle funds that they wish to invest in a relatively safe,
interest-bearing asset. At the same time, other individuals,
businesses, governments, and financial institutions find themselves
in need of seasonal or temporary financing.

• On the other hand, securities with longer-term maturities are sold in

Capital markets. The key capital market securities are bonds (long-
term debt) and both common stock and preferred stock (equity, or
What is Financial Institution?
Financial Institutions –
intermediaries that channel the
savings of individuals,
businesses, and governments
into loans or investments.
 What is Placements?
Private Placements - the sale of a new security
directly to an investor or group of investors.
Public Offering - The sale of either bonds or
stocks to the general public.
the first offering of stock is called an initial public
offering
The sale of previously owned securities takes place in secondary
markets.
The Philippine Stock Exchange (PSE) is both a primary and secondary
What is the Financial Instruments?
Financial Instruments – is a real or
a virtual document representing a
legal agreement involving some
sort-of monetary value.
Financial Instruments
When a financial instrument is issued, it gives rise to a financial sset
on one hand and a financial liability or equity instrument on the other
A Financial Asset is any asset that is:
Cash
 An equity instrument of another entity
 A contractual right to receive cash or another financial asset from
another entity.
 A contractual right to exchange instruments with another entity
under conditions that are potentially favorable.

Example :Notes Receivable, Loans Receivable, Investment in Stocks,

Investment in Bonds
A Financial Liability is any liability that is a
contractual obligation:
 To deliver cash or other financial instrument to
another entity.
 To exchange financial instruments with another
entity under conditions that are potentially
unfavorable.
Examples: Notes Payable, Loans Payable, Bonds
Payable
An Equity Instrument is any contract that
evidences a residual interest in the assets of
an entity after deducting all liabilities.

Examples: Ordinary Share Capital,

Preference Share Capital
C. Financial instruments are legal agreements
between the holder and the issuer that give the
holder the right to receive payment with interest
or a right to share in company’s earning or
dividends from the issuer.
A financial instrument is a real or virtual
document representing a legal agreement
involving any kind of monetary value.
Types of financial instruments:
1. Cash Instruments - securities which are readily transferable and
instruments such as loans and deposits, where both borrower and
lender have to agree on a transfer. (Savings Account, Time
deposits)

2. Derivative instruments —instruments which derive their value

from the value and characteristics of one or more underlying entities
such as an asset, index, or interest rate. They can be exchange-traded
derivatives and over-the-counter (OTC) derivatives. (Money Market
Funds, Stocks, Bonds, Mutual Funds and Annuities)
Common Forms of financial instruments are:
1.Cash – Financial asset on the part of the holder and a financial
liability on the part of the government such as Bangko Sentral
ng Pilipinas.
2. Check – Financial asset of the payee and a financial liability
of the drawer or issuer.
3. Loan – Financial asset of the lender or creditor and a financial
liability of the borrower or debtor.
4. Bond – Financial asset of the holder or investor but
considered a financial liability of the issuing company.
5. Stock – Financial asset on the part of the investor or
shareholder but an equity of the issuing company.
C. Financial instruments are legal agreements
between the holder and the issuer that give the
holder the right to receive payment with interest
or a right to share in company’s earning or
dividends from the issuer.

A financial instrument is a real or virtual

document representing a legal agreement
involving any kind of monetary value.
Notes Receivable
Loan Payable
Equity Share
Capital Bonds payable
Loan Receivable
Investment in
Investment in bond
Stocks
 What is Financial System?

Financial System is a system that

allows the savers or cash surplus
transfers money to the borrowers even
in the absence of communication.
How would they prove that there was a transaction so that the
demander will be able to repay the supplier on time and at the
right amount?

Due to the increased need for security for the performance of

obligations arising from these transactions and due to the
growing size of the financial system, the transfers of funds
from one party to another are made through Financial
Instruments

Note that on the diagram presented, the solid lines represent

the flow of cash/funds, while the broken lines represent the
flow of financial instruments which represent obligations to
Three Elements of a Financial
System

1.Financial Market
2.Financial Institution
3.Financial Instruments
Take note, the financial market needs not refer to a
physical place. It refers to the concept of transferring
funds from one entity to another.

A financial institution is a physical establishment that

facilitates financial market activities (channeling funds
from those with excess to those who lack).

As compared to the financial market which is a concept,

a financial institution is a physical establishment
Financial Institution generally classified as:
1.Depository Institutions – accepts deposits from individuals
and business entities, extends loans to borrowers and manages
funds for investment purposes (banks, savings and loan
association, trust companies, and credit union).

2. Financial Intermediaries - matches sellers and buyers

indirectly by offering a service to help an individual/ firm to save or
borrow money (mutual funds companies, pension funds companies
and insurance companies).
3. Investment Institutions – a company engaged in buying
securities of other companies for investment purposes only.