Business Finance: Flow of Funds Within The Organization

Business SENIOR
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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Printed in the Philippines by Department of Education – Schools Division of

Pasig City
Business SENIOR
HIGH
Finance SCHOOL
Self-Learning
Module
5
Quarter 3
Flow of Funds within the

Organization
Introductory Message
For the Facilitator:
Welcome to the Business Finance Self-Learning Module on Flow of Funds

within the Organization!
This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.
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:
Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.
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:
Welcome to the Business Finance Self-Learning Module on Flow of Funds

within the Organization!
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.
This module has the following parts and corresponding icons:
Expectation - This points to the set of knowledge and skills that

you will learn after completing the module.
Pretest - This measures your prior knowledge about the lesson

at hand.
Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.
Lesson - This section discusses the topic in the module.
Activities - This is a set of activities that you need to perform.
Wrap-Up - This section summarizes the concepts and

application of the lesson.
Valuing - This part integrates a desirable moral value in the

lesson.
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
DIRECTIONS: Write A if the statement is correct and B if the statement is wrong.

Place your answer on the space provided.
_________ 1. High cash flow is generally associated with a higher share price whereas
higher risk tends to result in a lower share price.
_________ 2. When considering each financial decision alternative or possible action

in terms of its impact on the share price of the firm's stock, financial
managers should accept only those actions that are expected to
increase the firm’s profitability.
_________ 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
We have learned, to differentiate the Financial Environment which are

the Financial Institutions, Markets, and Instruments. Each has different roles,
functions, and activities that the firm can be used in achieving greater wealth.
LESSON
Financial managers evaluating decision alternatives or potential

actions must consider risk, return, and the impact on the share price.
Figure 1.1 FLOW OF FINANCIAL SYSTEM
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
❖ 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?
- Answers: Verbal agreement - Written agreement
• 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
2. Who are the makers of Financial Liabilities and Equity instruments?

- Answer: Users 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
Deposit Commercial banks

/ other Depository
Institutions
Individual
Investor
F
Investment
Purchase of shares Companies I
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.
1. A financial manager must choose between four alternative Assets: 1, 2, 3,

and 4. Each asset costs P35,000 and is expected to provide earnings over three
years as described below.
Based on the profit- maximization goal, the financial manager would choose
ASSET YEAR YEAR

1 2 A. Asset 1
1 21,000 15,000 6,000 B. Asset 2
C. Asset 3
2 9,000 15,000 21,000
D. Asset 4
3 3,000 20,000 19,000
4 6,000 12,000 12,000
2. A financial manager must choose between three alternative investments. Each
asset is expected to provide earnings over three years as described below. Based on
the wealth maximization goal, the financial manager would.
ASSET YEAR YEAR YEAR

1 2 3 A. Choose Asset 1
1 21,000 9,000 15,000 B. Choose Asset 2
2 15,000 15,000 15,000 C. Choose Asset 3
3 9,000 21,000 15,000 D. Be indifferent between Asset 1 & 2
45,000 45,000 45,000
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
• What should be the qualities of Financial Managers, to push the

organization in the right direction during a challenging times and
improve its overall productivity and success?
• Do you think using those financial institutions would help the company
to grow?
• What are the ways should the financial manager consider in decision
making?
POSTTEST
DIRECTIONS. Read the questions and encircle your answer.
1. Profit maximization fails because it ignores all EXCEPT _______________________.

A. The timing of returns B. Earnings per share
C. Cash flows available to stockholders D. Risk
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
5. Financial managers evaluating decision alternatives or potential actions must

consider __________________________________.
A. Only risk B. Only return
C. Both risk and return D. Risk, return and impact on share price
KEY TO CORRECTION
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
Alminar-Mutya, Ruby F. (2018). Business Finance: A Management Approach.

Mandaluyong City, Philippines: Anvil Publishing, Inc.
Domingo, James Cristopher D. (2013). Business Finance. Manila, Philippines: GIC
Enterprise & Co. Inc.
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Business SENIOR

Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand

Published by the Department of Education - Schools Division of Pasig City

Development Team of the Self-Learning Module

Education Program Supervisors

Librada L. Agon EdD (EPP/TLE/TVL/TVE)

Printed in the Philippines by Department of Education – Schools Division of

Flow of Funds within the

For the Facilitator:

Welcome to the Business Finance Self-Learning Module on Flow of Funds

This Self-Learning Module was collaboratively designed, developed and

Notes to the Teacher

Welcome to the Business Finance Self-Learning Module on Flow of Funds

This module has the following parts and corresponding icons:

Expectation - This points to the set of knowledge and skills that

Pretest - This measures your prior knowledge about the lesson

Recap - This part of the module provides a review of concepts

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

Valuing - This part integrates a desirable moral value in the

DIRECTIONS: Write A if the statement is correct and B if the statement is wrong.

_________ 2. When considering each financial decision alternative or possible action

We have learned, to differentiate the Financial Environment which are

Financial managers evaluating decision alternatives or potential

Figure 1.1 FLOW OF FINANCIAL SYSTEM

❖ How transactions between suppliers and users of funds take place?

2. Who are the makers of Financial Liabilities and Equity instruments?

Deposit Commercial banks

1. A financial manager must choose between four alternative Assets: 1, 2, 3,

ASSET YEAR YEAR

ASSET YEAR YEAR YEAR

• What should be the qualities of Financial Managers, to push the

DIRECTIONS. Read the questions and encircle your answer.

1. Profit maximization fails because it ignores all EXCEPT _______________________.

5. Financial managers evaluating decision alternatives or potential actions must

Alminar-Mutya, Ruby F. (2018). Business Finance: A Management Approach.

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