Business Finance: Flow of Funds Within The Organization
Business Finance: Flow of Funds Within The Organization
HIGH
Finance SCHOOL
Self-Learning
Flow of Funds within the Module
Organization 5
Quarter 3
Business Finance - 12
Quarter 3 – Module 5: Flow of Funds within the Organization
First Edition, 2020
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Finance SCHOOL
Self-Learning
Module
5
Quarter 3
This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the Learner:
This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.
Posttest - This measures how much you have learned from the
entire module.
EXPECTATIONS
At the end of the lesson, you are able to explain the flow of funds within
the organization through and from the enterprise and the role of the financial
manager.
PRETEST
_________ 1. High cash flow is generally associated with a higher share price whereas
higher risk tends to result in a lower share price.
_________ 3. To achieve the goal of profit maximization for each alternative being
considered, the financial manager would select the one that is expected
to result in the highest monetary return.
_________ 4. Dividend payments change directly with changes in earnings per share.
_________ 5. The wealth of corporate owners is measured by the share price of the
stock.
RECAP
Financial
Institutions
(A) (B)
Savers/Supplier of Private Placement Users/Demanders
funds of funds
Financial Markets
Legend:
The flow of cash funds
Flow of securities/notes/bonds/debts securities
• 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.
Questions:
1. Who are the holders of Financial Assets?
- Answer: Suppliers of Funds
• It shows how the key financial institutions serve as intermediaries for suppliers
and users of funds.
Figure 1.2. Provision of Financial Institutions Provide Financing for Firms
R
Policyholders Premiums
Insurance
M
Companies
Employees Employees
Pension Funds
and Employers
Employers Contribution GSIS / SSS
*Note: Broken lines represent the flow of financial instruments which represent
obligations to transfer cash or other assets in the future.
• When companies require funding, they either sell debt securities (or bonds) or issue
equity instruments. The proceeds from the sale of the debt securities and issuance
of bonds will be used to finance the company’s plans. On the other hand, investors
buy debt securities of equity instruments in hopes of receiving returns through
interest, dividend income, or appreciation in the financial asset’s price.
ACTIVITIES
As Financial Manager what would be your decision on assets and investment matters
to meet profit maximization? Analyze carefully and encircle your best answer.
Based on the profit- maximization goal, the financial manager would choose
WRAP-UP
• How financial manager considered a risk and return for the firm?
• Why the financial manager should maximize their wealth?
• How transactions between suppliers and users of funds take
place?
• 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?
VALUING
2. The key variables in the owner wealth maximization process are _________________.
A. Earnings per share and risk B. Cash flows and risk
C. Earnings per share and share price D. Profits and risk
3. Cash flow and risk are the key determinants in share price. Increased cash flow
results in ___________________________, others remain the same.
A. A lower share price B. A higher share price
C. An unchanged share price D. An undetermined share price
4. Cash flow and risk are the key determinants in share price. Increased risk and
others remain the same results in __________________________________.
A. A lower share price B. A higher share price
C. An unchanged share price D. An undetermined share price
D 5.
5. A A 4.
4. B B 3.
3. A B 2.
2. B 2. A B 1.
1. A 1. B
Pretest Activity PostTest
REFERENCES