BUSINESS FINANCE - You have to be listed under

PSE (Philippine Stock

THE DEFINITION OF FINANCE
Exchange) to be a public
Finance Decision – make a decision where owner of a company.
to spend our money.
*Profitable company is a successful
*Financial Manager – the money is trusted company = not true
to them
*Profit – something you gain
*Finance – science and art of managing
ACCOUNTING METHODS
money
*Accrual Method – something that is
*Budgeting – act of estimating revenue and
already accrued but not yet paid
expenses over a period of time.
*Prepaid Expense – an asset
SOURCES OF FINANCE
- paid but not yet used
a. Own business
b. Savings WEALTH MAXIMIZATION - maximize
c. Parents the wealth of resources they have
d. Investments
- Walang kwenta ang profit
Finance is concerned with decisions about: kung di naman alam pano
gamitin ng maayos.
 How much of their earnings they
spend - business should focus on this
 How much they save or how much *You go to PSE to buy shares.
they need
 How they invest their savings *Share price - price of the share
 Investment *Shares are fluctuating.
 Savings
 How they raise additional funds they *We only realize the potential of our money
need (Gitman) when you already sell your stocks.

Forms of Business Organizations *Kapag binenta mo na ang mga shares, hindi

mo na gain ang mga profits.
1. Sole Proprietorship
2. Partnership *Maganda ang kumpanya = mataas na share
3. Corporation price
2 Types: Financial Management – deals with
 Privately Owned decisions that are supposed to maximize the
- When converted to public, value of shareholder’s wealth.
they need more
capital/require money/more Managers – responsible for making the
investors decisions for the company that would lead
towards shareholders’ wealth maximization
 Publicly Owned
*In any decisions, they always consider the MARKETING, FINANCE,
shareholders. PRODUCTION, ADMINISTRATION
Shareholders = Investors (real owners of the Owners = Shareholders and Board of
business) Directors
FACTORS THAT INFLUENCE MARKET Managers = President (CEO), VP FOR
PRICE MARKETING, VP FOR FINANCE
(financial statements), VP FOR
1. Controllable by Management –
PRODUCTION AND VP FOR
organization has no control over it
ADMINISTRATION
 Profitability
 Having a good liquidity (able to  VP FOR FINANCE – financial
pay off the debt of the business statements
itself) and reasonable leverage  VP FOR ADMINISTRATION –
position (balance of capital and processing papers
loans)
For Board of Directors:
 Dividends (not mandatory)
 Competent management which - more shares, more votes
affects the company’s operating - sometimes board of directors are not
efficiency revealed to avoid bias
 Coming up with corporate plans
that improve the business - highest Policy making body in a
prospects of the company corporation
2. Uncontrollable External Factors
 RESPONSIBILITIES
 Macroeconomic conditions  Selling policies on investments,
 Political Stability capital structure and dividend
 Prospects of industry where the policies
company operates  Approving companies strategies,
 General market sentiment goals, and budgeties
 Flow of our foreign funds  Appointing and removing numbers
invested in the Philippine market on the top management including the
president.
*Through financial management ang
 Determining top management’s
objective ng company ay mararating even
operation
without the internal and external factors.
 Approving information and other
ACTIVITIES OF A FINANCIAL disclosures reposted in the financial
MANAGER statements.
Financial Manager – part of a management SHAREHOLDER’S OBJECTIVE =
team whose ultimate goal is to maximize WEALTH MAXIMIZATION
shareholder’s wealth.
PRESIDENT (CEO)
Shareholders -> Board of Directors ->
President (CEO) -> VP FOR
- Overseeing the operations of a company  Kapag mas marami equity hindi
and ensuring the strategies as approves by na balance.
the board are implemented as planned.
INVESTMENTS
- Performing all areas of management
WHY IS IT IMPORATNT?
- Representing the company in professional,
social, and civic activities  Short term investment – 1 year
 Long Term Investment – more
FUNCTIONS OF FINANCIAL than a year
MANAGER
2 TYPES OF LIQUIDITY RISK
 FINANCING – how to get more
money 1. Risk that a company will fail to pay
 INVESTING – san dadalhin yung its short term obligations.
perang nakuha after nila nag-invest 2. Risk that you will not be able to sell
Excess money investments in financial assets
- Gagamitin ang excess money immediately.
for the other needs of the OPERATING
company
 OPERATING – day to day -Determine how to finance working capital
operations of the company accounts such as accounts receivables and
*Operations Manager – responsible inventories
for the operations NO AR = NO CAPITAL
 DIVIDEND POLICIES- kung gaano
karami ang shares, ganun karami ang MONITOR INVENTORIES = TO LOOK
dividends IF THERE ARE PERISHABLE ITEMS
- Dividends are given
quarterly, annually, or semi-
aanual. DIVIDEND POLICIES
- These are bonus for 2 CRITERIAS
shareholders kapag maganda
ang takbo ng company 1. Enough retained earnings to support
cash divivdend declaration
FINANCING  Retained earnings – back up
SAMPLE CAPITAL STRUCTURE money
2. The company must have cash.
 A = L + OE
 Pag nagliquidate, liab muna What will affect the decision of the
before oe management in paying dividends?
 Owner’s equity is related to *A company gives out dividends is a good
capital structure company.
 Debt – utang
 Equity – kung magkano agng  Availability of viable long term
meron talaga ang company investment
  Access to long term sources of - only big corporation (public
funds owned) can trade
 Management’s target capital - investors/shareholders are
structure needed
- ownership is being bought in
Investment and Risk Manager - sila ang
the financial market
bahala sa investments and yung risk
- ownership is lessened pero di
- San dadalhin yung pera na babayaran ang inutang mo
- you could trace who bought
Credit Managers - facilitating the
your shares
receivables
2 TYPES
Controllers, Financial Officers, Treausrers – 1. Primary Market – financial market in
money na pumapasok sa operations which securities are initially issued;
the only market in which the issuer is
Chief Financial Officer – vp for finance
directly involved in the transaction
FINANCING 2. Secondary Market – financial market
in which preowned securities (those
2 ROLES that are not new issues) are traded
Suppliers of funds – had excess money IPO (Initial Public Offering) – it’s the first
- Maker of financial assets time that a company shares its stocks to the
public
User/ Demander of funds – needing money
- new listed corporation under
- liabilities PSE
Private Placement – the sale of a new *PSE – both primary and
security directly to an investor or group of secondary market
investors Financial Institutions – intermediaries that
- 2 parties are directly transacting with each channel the savings of individuals,
other businesses and governments into loans or
investments
*There must be a written agreement for it to
be legally. - kailangan ibalik ang pera na
inutang mo with interest
Financial Market – organized forums in - you do not know where our
which the suppliers and users of various money went
types of funds can make transactions
directly Financial Instruments – is a real
or a virtual document
- meeting place ng mga representing a legal agreement
nangangailangan aat may involving some sort of monetary
pera para maipautang value
- only stocks can be traded in a
financial market - the one that circulating
 TYPES: - Pondo kapag magp’pension
ka na
1. Debt Securities
- Insurance companies offer
 Money Market Debt – short term
pension funds
debt
 Other Financial Institutions –
- less than a year
government owned
- Credit card
 Treasury Bills – coming for 2 TYPES:
government
1. Bank – don’t accept demand deposits
 Commercial Papers – coming from
a. Central Banks – task to recreate
corporations
na baguhin ang pera natin
 Money Market Funds – banks
- Control or regulate the
 Consumer Credit – credit card debt
money
 Long Term Debt (Capital
b. Thrift Banks – rural bank
Market)
- Usually cater to rural areas as
 Treasury notes and bonds – issued by
compared to commercial banks
the government for long term use;
which focus mainly on the top
 Municipal Bonds (Local Bonds) –
companies located in the major cities
municipality ang nag release
- Operate on a smaller scale
 Corporate Bonds – issued by a
- Savings bank
corporate company.
- Bangko De San Juan, China Bank
 you’re the one buying or the one
(CBS), BDO, BPI, PNB, PSBank,
needing
RSB, PBB
2. Equity Securities
c. Commercial Banks
 Common Stocks – common
d. Cooperative Banks – primary
stockholders have the right to
objective of every cooperative is to
vote
provide goods and services to its
- Mas Malaki ang kinikita
services and thus enable them to
- Owner of the business attain increased income and savings.
 Preferred Stocks – preferred does Conducting affairs of the cooperative
not vote for charitable purposes.
*Liab then preferred then common - purpose to help the members
- establish for charitable
FINANCIAL INSTITUTIONS purposes
(SOURCES OF FUNDS) - bank that holds deposits,
 Commercial Banks makes loans and provides
 Insurance Companies – they have other financial services to
savings and investment portions cooperatives and member-
 Mutual Funds – offered by banks owned organizations. Also
 Pension Funds – public and known as Banks for
private Cooperatives
e. Offshore Bank Unit – refers to a
branch, subsidiary or affiliate of a
 foreign banking corporation which is owned and managed by its
duly authorized by the BSP to members.
transact offshore banking business in - ……….
the Philippines d. Pawnshops – is a stores that
- transactions in foreign currencies offer money, usually a fraction of
 Taiwan Cooperative Bank the value, for a variety of
 BNP Bank different items.
- Provides immediate cash relief to
*To deposit and lend money = main purpose
individual customers but charges
of a bank
higher rates than most banks.
2. Non – Bank – can’t deposit money Capitalization 100,000.
but can loan
HOW FINANCIAL INSTITUTIONS
- They have no banking license
PROVIDE FINANCING OF FIRMS
Advantage: mabilis makakuha ng pera
Disadvantage: m7alaki ang interest
a. Mutual Funds – are collective
investments or funds of small
investors pooled together and
managed to be able to reach
maximum returns
- It is managed by a professional
financial manager who is also known
FINANCIAL MARKETS – buying nad
as portfolio manager
selling of securities (stocks)
- Gains or losses from the portfolio are
distributed to the investors - Refers to a marketplace where
buyers and sellers participate in the
*A bank can be a fund manager.
trade. It is a platform tha facilitates
b. Insurance Companies – sells to buy and sell financial instruments/
insurance coverage to provide securities.
guarantee of compensations for
Importance:
specified death, illness, accident,
loss or damage to property in  Helps in economic growth of
return for payment for premium. country.
- Holders buys peace of mind and  Helps avers to become investors.
protection from business  Helps businesses to raise money
discontinuity to expand their business.
c. Credit Unions – non-profit
organizations aimed at providing Functions:
service and encouraging thrift  Price Determination
among members. It is privately
 Mobilization of Funds
  Ensures Liquidity Review of Financial Statement
 Saves Time and Money Preparation, Analysis, and Interpretation

Goal: Bring investors and borrowers Financial Statements

(governments and companies) together
 Statement of Financial Positon –
Types of: overall standing of the business
- Position of the business in terms of
 Capital markets which consist of: finances
 Stick markets - which provide - Asset palagi ang tinitignan
financing through the issuance of
- We should be seeing assets vs.
shares or common stock, and
liabilities
enable the subsequent trading
thereof. Statement of Income – results of
 Bond markets - which provide operation
financing through the issuance of
- Profit can be seen (Net Loss, Net
bonds, and enable the subsequent
Gain, Net Profit)
trading thereof.
- Sales/Income – Expenses
 Commodity markets - which
- Salaries and Wages Expenses, Tax
facilitate trading of commodities
and Licenses Expenses, Utilities
 Money markets –provide short
Expense, Rent Expense, Supplies
term debt financing and
Expenses are high
investment
 Derivatives Markets – provide Solutions:
instruments for the management
 Review your employees
of financial risk
 Cost-cutting
 Futures Markets – provide
standardized forward contracts  In terms of Rent, move to
for trading products at some another location.
future date; see also forward Statement of Cash Flows
market.
 Cryptocurrency Market –  Operating – anything that is
facilitate the trading of digital related to the operations of the
assets and financial technologies business
 Spot Market  Financing – kahit anong
 Interbank Lending Market pinautang or inutang
 Investing – anything that is
Financial Asset – pagbili ng stock related to capital
For a bank: source ng financial asset; sa mga Statement of Changes in Stockholder’s
pinapautang nila Equity – nababawasan kapag may nag
withdraw
  Debt – tinitignan kung gaano
kalaki ang utang
FINANCIAL STATEMENT ANALYSIS
- Lower than 1
Tools:  Debt to Equity – how much of
the ownership is taken away
Ratio – proportionate; aims to measure
 Interest Coverage – capability to
1. Profitability Ratios – used to measure the pay interest
profitability of a company
4. Efficiency Ratios or Turnover (Shifting)
 Return on Equity – usually Ratios – time is the basis
ginagamit ng mga investors
- measure the management’s efficiency on
- Kpag nag invest magkano ang
utilizing the assets of the company
kikitain
 Return of Equipment – kung  Total Asset – percentage
magkano ang kikitain kung bibili  Fixed Asset –
ng equipments  Accounts Receivable – gano
 Gross – expenses are not yet katagal makukuha ang pinautang
deducted mo
 Net Profity Margin  Inventory – gano katagal ang
inventory
2. Liquidity Ratios – measures the ability of
a company to pay maturing obligations from  Accounts Payable –gano katagal
its current assets bago magbayad ng utang

- nagpapautang at gusto mangutang ang Operating Cycle - cycle of the operation of

usually gumagamit nito the business

- higher than one  Operation - process or making

and producing the certain output
Liquidity - Capacity to pay off debts of the business
 Current Ratio Cash Conversion Cycle – kasama na ditto
 Quick – Asset – madaling ang pagbenta ng product
maconvert like cash and account
receivable
- Maliit ang value OPERATING AND CASH COVERSION
CYCLE
3. Leverage Ratios – you have to level your
debt and equity  The longer the result, the longer
we will be getting the capital or
- Shows the capital structure of a
investment
company, that is, how much of the
 Days ang result
total assets of a company is financed
by debt and how much is financed by Horizontal and Vertical Analysis
stockholder’s equity
  Vertical Analysis – shows the Reward – does not necessarily mean
capital structure of a company, tangible and intangible rewards
that is, how much of the total
Penalty
assets of a company is financed
by debt and how much is Financial Planning Process
financed by stockholder’s equity
1. Set Goals or Objectives
- We analyze through years
- You have to identify the vision,
- We’re comparing different account
mission, and goals of a business
titles vs. total
2. Identify Resources
 Horizontal Analysis – measure
- Check the production capacity, the
the management’s efficiency in
human resources and money
utilizing the assets of the
3. Identify goal-related tasks
company
- wealth maximization = to increase
The Financial Planning Process sales
4. Establish responsibility center for
Strategy – plan
accountability and timeline
- Defines your long-term goals and - Choose and designate persons
how you’re planning to achieve accountable for these plans
them. In other words, your strategy  Quantified Plans
gives you the path you need toward 5. Establish an evaluation system for
achieving your organization’s monitoring and controlling
mission. 6. Determine contingency plans
- Back-up plans (Plan A, Plan B, Plan
Tactics – process or steps to facilitate the
C)
strategy
Budget Preparation
- Are much more concrete and are
often oriented toward smaller steps
and shorter timeframes
Strategic vs. Tactical Planning
Strategic – vision and mission
Tactics – steps for you to achieve something

Management Planning – setting the goals of

the organization and identifying ways to
them