Understandin

g finance
Business Finance - St.
timothy
 Learning
Outcomes:
 Identify the different areas of finance.
 Discuss finance in business organization.
 Describe the functions of a finance officer.
 State the qualifications of a finance
officer.

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Finance as a field of specialization, deals with and is strictly governed by
financial facts and truths. Factual information, which is the product of scientific
business processes, supports and provides basis for making financial decisions.

Finance is also considered an art. The different financial services continue to

change and develop as operations of the business organization become more
complicated. The financial practices do not remain static but become adaptive
to the changes happening in the business environment over time.

Both a science and an art

Application of ✗ Finance used to be an integral part of
economics. Today, finance functions as a

economic and separate specialized field that operates

closely with economics and accounting.

accounting ✗ Economics, as a social science, is concerned

with the efficient utilization of scarce
concepts and resources to satisfy human needs and wants.

principles ✗ Accounting is an art of recording business

transactions deals with the preparation of
financial statements. The financial
statements, the final product of the whole
accounting process, provide useful
information to finance.

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 System, structure,
and process
 The field of finance provides and clearly defines a systematic, structured, and
procedural mechanism on various financial activities affecting the business.

 The term system connotes that the financial activities of the business are
properly coordinated with the whole structure.

 A clear financial procedure directs all the human resources of the business
towards the attainment of the ultimate objective.

 Every financial activity has a purpose.

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• Economically, the fundamental concern of finance, is to ensure that the
limited financial resources are correctly managed, allocated, and utilized in
order to achieve the financial goal of a business.
• In this context, management implies the efficient handling of business
resources, particularly those that are financial in nature.
• Allocation connotes the wise distribution of financial resources to the
different functional areas, the proper assignment of funds between current
and non-current assets, and the correct sourcing of funds based on the
concepts of risks and return.

Management, allocation and

Utilization
 Financial resources,
investments, and
expenditures
o Financial resources refer to the funds of a business which are provided by the
owner or by the creditors.

o Financial investments are resources that are expected to provide income and
achieve appreciation or growth of the business.

o Financial expenditures of a business may cover the operating expenditures

and the capital expenditures.

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 Areas of finance
FINANCE

PRIVATE FINANCE PUBLIC FINANCE

PERSONAL FINANCE BUSINESS FINANCE

FINANCIAL CAPITAL FINANCIAL

MANGEMENT MARKET INVESTMENTS
PRIVATE FINANCE is the management of financial resources of private individuals, non-
governmental organizations, and private organizations in accordance with the prescribed
financial policy and priority of the person of business organizations.

PUBLIC FINANCE is the allocation of government income generated from either taxation or
borrowings and the government expenditure based on the approved national and local
appropriation or budget. It is also termed as fiscal administration.

In the Philippines, the national agency primarily involved in the exercise of finance function is
the Department of Finance (DOF) along with its collecting and regulatory offices such as the
Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC), the Land Transportation
Office (LTO), and the Land Transportation Franchising and Regulatory Board (LTFRB).

The DOF, however, works closely with the other national government agencies such as the
Department of Budget and Management (DBM), the Bangko Sentral ng Pilipinas (BSP), the
Securities and Exchange Commission (SEC), and even the two houses of the Congress of the
Philippines in the formulation of laws and policies, and appropriation, allocation, administration,
and spending of public funds.

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PERSONAL FINANCE is a sub-category of private finance which is directed towards
the management of personal resources of an individual.

BUSINESS FINANCE is an area of finance that focuses on the handling and

management of financial resources of a business organization.

> Financial management focuses on capital budgeting decision or investment

decision on the acquisition of assets and its corresponding financing scheme.

> Capital market is an area of business that studies the different financial
institutions and their functions that provide assistance to both private and public
borrowers of funds. It also includes the study of the cost of borrowing the funds such
as interest and other financing charges.

> Financial investment includes business decisions about the value and price of
stocks and bonds, portfolio analysis, security analysis, and behavior of the investors.

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Finance in an organization

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Finance in an organization

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 Functions of a finance officer
The finance officer is heavily engaged in making decisions for the business to attain its
objectives at the optimum level. His or her decision-making function is broadly
classified into three (as illustrated below):

Financial Decisions of the CFO

Operating Decisions ✗ Investing Decisions ✗ Financing Decisions

✗ Credit and collection ✗ Non-current asset acquisition ✗ Equity financing

✗ Level of inventory
✗ Granting of discounts
✗ Budgeting
✗ Payment and control of
operating expenditure
✗ Daily operating decisions
✗ Investment portfolio ✗ Debt financing
✗ Pricing decision of stocks and ✗ Cost of capital and borrowing
bonds ✗ Short-term and long-term
✗ Discounted cash flow analysis borrowings
in capital budgeting ✗ Interest rate

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Operating decisions are financial decisions affecting the routine operating activities
of a business. It is directed towards providing immediate solution to the concerns of
the functional areas of the firm such as manufacturing, marketing, purchasing and the
like.

Investment decisions deal with choosing small an large projects with several
investment opportunities. The different projects are critically evaluated in terms of
return on investment and expected cash flow.

Financing decisions deal with raising or acquiring of funds from outside sources and
not from the ordinary results of the business operations. In other words, financing
decisions are made when the business needs to borrow money.

A business can raise money from the following activities or sources:

1. Operations
2. Investors or lenders
3. Owners

Functions of a finance officer

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 Qualifications
of finance
officer
 Possesses sound knowledge of accounting and economic
concepts and principles
 Has profound understanding of operation science,
statistics, and marketing research
 Has gained technical experience in finance and provided
professional judgment
 Has good communication skills in both oral and written
forms
 Has impressive relationship with banks and other
financial institutions
 Has outstanding relationship within the business and
among other functional areas
 Is ethically and morally upright and socially responsible

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“Stay positive.
Work hard.
Make it happen.”

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Reference:
Aduana, N. (2017). Business Finance in the
Philippine Setting for Senior High School. C &
E Publishing, Inc., Quezon City, Philippines.

Thank
you!
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Prepared by: Maffi A. Titoy