Business

Finance
On a sheet of paper, answer the following
questions:
A. How much is your daily allowance? If not given daily, how much is your
average allowance per day?
B. Write down all the items you spend money on. List the description and
peso amount spent.
C. Compute for the balance of your allowance by deducting the expenses
you listed from your daily allowance.
D. If the answer to Question C is positive, what do you do with the money
left? If the answer is negative, where do you get additional money?
Finance in Everyday Life
Finance
-can be defined as the science and art of
managing money. (Gitman & Zutter, 2012)
-is the art and science that describes the
management, creation and study of money,
banking, credit, investments, assets and
liabilities.
Budgeting
- is
the act of estimating revenue
(in the form of their allowance)
and expenses over a period of
time (in this case, on a daily
basis).
Forms of business organizations:
Sole Proprietorship - A business owned by one
person and operated for his or her own profit.
Partnership - A business owned by two or
more people and operated for profit.
Corporation – An entity created by law
owned by shareholders.
Corporations may either be privately
owned or publicly owned.

Privately owned corporations are often

owned by family members whose stocks
may not be offered to outsiders unless
consent by the family members is secured.
Corporations may either be privately
owned or publicly owned.

Companies which are publicly listed

are owned by unrelated investors and
are traded in organized exchanges like
the Philippine Stock Exchange.
Goals of business finance
Profit Maximization - is a traditional
and narrow approach where business
entities determine the best output and
price levels in order to maximize its
return.
Profit
is a measure of the financial
performance of a company for
a period of time.
Goals of business finance
Wealth Maximization - is a modern
concept which deals with the increase
of the value of a business in order to
increase the share of stockholders or
the owners.
Key Individuals in Business Finance
Financial Manager- he is in charge of
the overall finance functions of a
business. In large companies, this
position is usually termed as Chief
Financial Officer.
Key Individuals in Business Finance
Controller – he is the one responsible for
managing the accounting staff that provides
managerial accounting information used for
internal decision making, financial accounting
information for external reporting purposes,
and tax accounting information to meet tax
filing requirements.
Key Individuals in Business Finance
Treasurer- his primary duties include
asset safekeeping and cash management.
He is also responsible for obtaining
investment capital as well as obtaining
loans and credit from outside sources.
Functions of Financial Manager
1. Forecasting Financial
Requirements - the financial
manager is responsible to estimate
the financial requirement of the
business.
Functions of Financial Manager
2. Acquiring Necessary Capital -
Financial managers are also in
charge of the acquisition of the
necessary capital to be used in the
business.
Functions of Financial Manager
3. Investment Decision - finance
manager must carefully select best
investment alternatives and consider
the reasonable and stable return from
the investment.
Functions of Financial Manager
4. Cash Management - The financial
manager must see to it that the entity
has enough cash for its business
operations as well as for the payment
of debts or liabilities.
Functions of Financial Manager
5. Interrelation with Other
Departments - finance manager must
maintain a good relationship with all
the functional departments of the
business organization.
The Financial System
Financial System is a framework
which collectively describes the
financial markets, financial
institutions, borrowers and lenders
within the economy.
Financial Instruments
According to the Philippine Accounting
Standards 32, a financial instrument is
any contract that gives rise to both a
financial asset of one entity and a
financial liability or equity instrument of
another entity.
Financial Instruments
In business, when we say
financial instruments, we
basically refer to stocks, bonds
and notes.
Stocks
-type of security that signifies ownership in a
corporation and represents a claim on part
of the corporation's assets and earnings.
-This is a financial asset of the stockholder
and an equity instrument of the issuing
company.
Common Stock
- represents shares of ownership in a
corporation and the type of stock in which
most people invest.
- Common shares represent a claim on profits
(dividends) and confer voting rights.
- It is also the type of stock that provides the
biggest potential for long-term gains.
Preferred Stock
- comes with no voting rights. So, when it
comes time for a company to elect a board of
directors or vote on any form of corporate
policy, preferred shareholders have no voice in
the future of the company.
- The dividends for this type of stock are usually
higher than those issued for common stock.
Common Stock vs. Preferred Stock
•The main difference between preferred and common
stock is that preferred stock gives no voting rights to
shareholders while common stock does.
•Preferred shareholders have priority over a company's
income, meaning they are paid dividends before
common shareholders.
•Common stockholders are last in line when it comes to
company assets, which means they will be paid out
after creditors, bondholders, and preferred
shareholders.
Bonds
-debt security in which an investor
lends his money to an entity which
borrows the funds for a defined
period of time at defined interest
rate.
Bonds
-A bond is a financial asset of the
investor – reflected as Bonds
Receivable and a financial liability of
the issuing company –reflected as
Bonds-Payable.
Notes
-debt security obligating
repayment of a loan with a
corresponding interest within a
defined period of time.
Notes
-A note is the financial liability of
the debtor - reflected as Notes
Payable and a financial asset of
the creditor - reflected as Notes
Receivable.
Financial Markets
it is where stocks, bonds and
other financial securities can
be purchased or sold.
Financial Markets
Financial markets may be
classified into two namely the
money market and the capital
market.
Money Market
- is where debt securities with an
original maturity of one year or
less are traded as well as long-
term securities having at least six
months left to maturity.
Capital market
- is where securities with maturity
of more than one year are traded.
The capital market is subdivided
into bond market, stock market
and mortgage market.
1. Foreign Exchange Market
- where participants can be
able to buy, sell, exchange
and speculate on currencies.
2. Fixed Income Exchange Market
- is the country’s first
centralized electronic
infrastructure for trading of
fixed-income securities.
2. Fixed Income Exchange Market
- is a comprehensive financial market
infrastructure that aims to provide an
electronic platform for trading, clearing
and settlement, and depository and
custodianship fixed-income securities
and its derivatives.
Fixed-income securities
- these are investments that provide
return in the form of fixed periodic
payments and the eventual return of
principal at maturity. This may include
treasury bonds and certificate of
deposits.
3. Stock Market
- The Philippine Stock Exchange (PSE) is a
private organization created to provide
and maintain a fair, efficient, transparent
and orderly market for the purchase and
sale of stocks and other securities.
Financial Intermediaries
- is an entity that acts as the middleman
between two parties in a financial
transaction. Financial intermediaries are
businesses which move money from the
individual into the markets.
Financial Intermediaries
- Financial institutions are
considered as the financial
intermediaries.
Financial institution
- establishment that provides financial
services such as investments, loans
and deposits. Financial institutions
may either be a banking institution or
nonbanking institution.
Banking Institutions
- A bank is a financial institution
that accepts deposits from the
public and creates credit which is
being supervised by a regulatory
agency.
Commercial Bank
- a financial institution that provides
various financial services, such as
accepting deposits, offering savings
and checking account services, and
issuing loans for both private
individuals and businesses.
Investment Banks
- Unlike commercial banks, investment
banks do not take deposits. Their focus is
assisting individuals, corporations, and
governments in raising capital by
underwriting or acting as the client's
agent in the issuance of securities.
Non-Banking Financial Institutions
- is a financial institution that does
not have a full banking license or
is not supervised by a national or
international banking regulatory
agency.
Credit Unions
- These are non-profit financial cooperatives
owned by and operated for the benefit of its
members. These member-owned financial
cooperatives are democratically controlled by
its members and operated for the purpose of
offering its members economical financial
services.
Savings and Loan Associations
- These are also known as thrift
banks, these are financial institutions
that specialize in savings type
deposits, mortgages and other loans.
They provide dividends to their
depositors.
Insurance Companies
- These are corporate entities that insure
people against loss. The client pays a fee,
known as a premium, in exchange for the
promise of the company to protect the
client financially in the event of certain
potential misfortunes.
FLOW OF FUNDS