QUIZ 1 (UNIT 1)

1. The basis of this type of finance is earning more money and spending less money
- PERSONAL FINANCE
2. This type of financial institution pool risk by collecting premiums from a large group of people who want
to protect themselves and/or their loved ones against a particular loss, such as fire, car accident,
illness, lawsuit, disability, or death
- INSURANCE COMPANIES
3. This type of financial institution acts as an intermediary between buyers and sellers to facilitate
securities transactions. They are compensated via commission after the transaction has been fully
completed.
- BROKERAGES
4. This type of financial institution is a corporation or a trust through which individuals invest in diversified,
professionally managed portfolios of securities by pooling their funds with those of other investors.
- INVESTMENT COMPANIES
5. Any marketplace where buyers and sellers participate in the trade of assets.
- FINANCIAL MARKETS
6. A type of market that issues new securities on an exchange.
- PRIMARY MARKET
7. A short-dated government security, yielding no interest but issued at a discount on its redemption price.
- TREASURY BILLS
8. Share/stocks of ownership in a corporation.
- SECURITIES
9. A financial contract with a value that is derived from an underlying asset.
- DERIVATIVE
10. A segment of the financial market in which financial instruments with high liquidity and very short
maturities are traded.
- MONEY MARKET
QUIZ 2 (UNIT 1)
1. A business depends on many factors and the most important of them is finance
- TRUE
2. A partnership is a legal entity doing business, and is distinct from the individual within the entity
- FALSE
3. Financial activities of a firm are one of the most important and complex activities of a firm
- TRUE
4. While investment can be called ‘banks’ their operations are far different than deposit gathering
commercial banks. An investment is a financial intermediary that performs a variety of services for
business and some governments
- TRUE
5. A stock is a debt investment in which an investor loans money to an entity
- FALSE
6. The stock market is open 24 hours a day, five days a week, 7 days a week
- FALSE , FOREX
7. Long term debt based financial instruments last for less than 270 days
- FALSE , Short term
8. Securities are debt based financial instruments
- FALSE , equity based
9. Anyone even non-member can transact in credit unions
- FALSE
10. An example of financial stewardship is corruption of funds
- FALSE
QUIZ 3 (UNIT 2)
1. The third step of financial planning process
- CASH FLOW FORECAST
2. A method whereby you established a plan on how your money will be spent
- BUDGETING
3. Production Budget = + Target Ending
- EXPECTED SALES
4. Sales = Number of units X
- SELLING PRICE
5. This includes accounting fees, registration and licenses, equipment fit out and initial working capital.
- SET-UP COST
6. Because of adequate planning and financing, several companies struggle even during start-up periods
- FALSE
7. A corporate financial plan can help executives decide how they can meet the goals of the company.
 - TRUE
8. The most important account in financial statement in making a forecast is sales since most of the
expenses are correlated with sales
- TRUE
9. Start-up firms or another period of operation often does not have certain cash requirements to be
capable of extending services to customers.
- FALSE
10. When you have financial plan, implementing financial decisions is simpler and even keeping on path to
complete your objectives
- TRUE
QUIZ 4 (UNIT 3)
1. High working capital isn’t always a good thing. It might indicate that the business has too much
inventory, not investing its excess cash, or not capitalizing on low expense debt opportunities
- TRUE
2. Working capital management is the process of ensuring a company is using its financial resources in
the most effective way possible.
- TRUE
3. The safeguarding of assets is an objective of a company’s system of internal control
- TRUE
4. When a working capital calculation is negative, this means the company’s current assets are not
enough to pay for all of its current liabilities. The company has more short-term debt than it has
short-term resources. Negative working capital is an indicator of poor short-term health, low liquidity,
and potential problems paying its debt obligations as they become due.
- TRUE
5. A ratio of more than 2 means that the company have too much inventory
- TRUE
6. A firm’s collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important
role in keeping its average collection period short, although too strict a collection policy can reduce
profits due to lost sales
- TRUE
7. Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to
customers
- FALSE
8. Current situation of the market, economy, and even politics is used in credit evaluation
- TRUE
9. Net working capital, defined as current assets minus the sum of payables and accruals
- TRUE
10. Current assets are economic benefits that the company expects to receive for more than one year
- FALSE
QUIZ 5 (UNIT 4)
1. The company would need to acquire more inventories and supplies. Additional manpower will require
more funds to devote to salaries.
- TRUE
2. Only companies with outstanding credit ratings from legitimate rating departments and agencies would
be able to trade their commercial papers at a fair price because commercial papers are not supported
by collateral; thus, it is only backed by issuers integrity.
- TRUE
3. Jollibee foods corporation buying Mang Inasal is an example of merger
- FALSE , acquisition
4. Profits of the company cannot be a source of long-term funds because profits are distributed to
stockholders as dividends.
- FALSE, true ata to o kaya tanong na lang sa naka perfect (walang nakaperfect dito) okee
5. Organizations and even individuals borrow from informal lending companies because they offer loans
with lower interest with fewer requirements from banks.
- FALSE, higher interest rate
6. Interest is tax deductible in equity financing
- FALSE , debt financing
7. Organizations can choose both equity and debt financing as their sources of funds
- TRUE
8. Corporate Bond is an example of debt financing
- TRUE
9. Corporate Bond is an example of long-term fund
- TRUE
10. Equity financing does not demand you to give up a portion of ownership of your business.
 - FALSE

ADDITIONAL QUIZ (IBANG SECTION)

1. Internal control is most effective when several people are responsible for a given task.
- TRUE
2. The more inventory the company has in stock, the greater the company’s profit.
- FALSE
3. Segregation of the duties of accounts receivable management does not play an important role in
internal control methods. By dispersing the accounts receivable management duties among different
employees, it can’t increase oversight and reduce the opportunity for fraud.
- FALSE
4. It indicates the number of units a firm expects to sell
- SALES BUDGET
5. Having a financial plan is a crucial step in mapping out your financial future.
- TRUE
6. There might be delays on payments of the customers
- THIRD STEP: CASH FLOW FORECAST
7. Set a benchmark for service sector based on the average number of hours worked per week
- FIFTH STEP: BREAK EVEN ANALYSIS
8. Compute for possible margins and check the pricing model of the company
- SECOND STEP: PROFIT AND LOSS FORECAST
9. The process of creating a plan to spend your money.
- BUDGETING
10. The spending program.
- BUDGET
11. A schedule showing planned production in units which must be made by a manufacturer during a
specific period to meet the expected demand for sales and the planned finished good inventory.
- PRODUCTION BUDGETING
12. Financial planning is the least crucial for starting a company or beginning another phase of business
orientation.
- FALSE
13. The estimated sales volume and price must be forecasted with sufficient care and only reliable forecast
techniques should be employed.
- TRUE
Unit 1: Introduction to Financial Management

Finance
● Financius, from finis ‘end’ (Latin)
● Finance, from finer ‘ to pay a ransom’ (Old French)
● Fine ‘to pay a penalty’ (English)
● Ending (Orig English)
● Ending/Satisfying Debt (French Influence)

Types of Finance

1. Public Finance - the government helps prevent market failure by overseeing allocation of resources,
distribution of income and stabilization of the economy. Regular funding for these programs is secured
mostly through taxation. Borrowing from banks, insurance companies and governments.
2. Corporate Finance - business brings in financing through equity investments and credit arrangements,
and by purchasing securities. Start-ups may receive investments from angel investors or venture
capitalists, and established companies may sell stocks or bonds
3. Personal Finance - earning more money and spending less money is the basis of personal finance.
Individuals may earn more money by starting a business, taking on additional jobs or investing.

Types of Business Organizations

1. Sole Proprietorship
● A sole proprietorship consists of one individual doing business. Sole Proprietorships are the
most numerous form of business organization in the Philippines, however they account for little
in the way of aggregate business receipts.
ADVANTAGES DISADVANTAGES

● Ease of formation and dissolution ● Unlimited liability

● Typically, there are low start-up costs and low ● Limited life
 operational overhead ● Difficult for an individual to raise capital
● Ownership of all profits
● Subject to fewer regulations
● No corporate income taxes

2. Partnership
● A partnership consists of two or more individuals in a business together. Partnerships may be
as small as mom and pop type operations, or as large as some of the big legal or accounting
firms that may have dozens of partners.
ADVANTAGES DISADVANTAGES

● Synergy, there is a clear potential for the ● Unlimited liability

enhancement of value ● Limited life
● Relatively easy to form ● There is a real possibility of disputes
● Subject to fewer regulations than corporation
● No stronger potential of access to greater
amount of capital
● No corporate income taxes

3. Corporation
● Corporations are probably the dominant form of business organization in the philippines. A
corporation is a legal entity doing business that consists of one or more individuals, and is
distinct from the individuals within the entity. Public corporations are owned by shareholders
who elect a board of directors to oversee primary responsibilities.
ADVANTAGES DISADVANTAGES

● Unlimited commercial life ● Regulatory restrictions

● Greater flexibility ● Higher organizational and operational cost
● Ease of transferring ownership ● Double taxation
● Limited liability

Financial Manager and their Responsibilities

Financial management means:

● To collect funds for the company at low cost
● To use this collected funds for earning maximum profits

Main Functions of a Financial Manager:

1. Raising of funds - in order to meet the obligation of the business it is important to have enough cash
and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial
manager to decide the ratio between debt and equity.
2. Allocation of funds - once the funds are raised through different channels the next important function is
to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In
order to allocate funds in the best possible manner the following point must be considered.
a. The size of the firm and its growth capability
b. Status of assets whether they are long-term or short-term
c. Mode by which the funds are raised
3. Profit Planning - profit earning is one of the prime functions of any business organization. Profit earning
is important for survival and sustenance of any organization. Profit planning refers to proper usage of
the profit generated by the firm.
4. Understanding Capital Markets - shares of a company are traded on stock exchange and there is a
continuous sale and purchase of securities. Hence a clear understanding of the capital market is an
important function of a financial manager.

Achieving goals of Business Organization

Financial management is the responsibility of planning, directing, organizing, and controlling a company.

Guiding principles for financial management systems:

● Consistency - financial policies and systems must remain consistent over time.
 ● Accountability - must be able to explain and demonstrate to all stakeholders how you have used your
resources and what you have achieved.
● Transparency - must be open about its work and its finances, making information available to all
stakeholders.
● Integrity - must operate with honesty and propriety.
● Financial Stewardship - must take good care of the financial resources it has been given and ensure
that they are used for the purpose intended.
● Accounting Standards - system for keeping financial records and documentation must observe
accepted external accounting standards.

The Financial Institutions and the Financial Markets

A financial institution is an establishment that conducts financial transactions such as investments,
loans, and deposits. Almost everyone deals with financial institutions on a regular basis.

Commercial Banks
● Accept deposits and provide security and convenience to their customers. Part of the original purpose
of banks was to offer customers safe keeping for their company.
Investment Banks
● While investment banks can be called “banks” their operations are far different from deposit-gathering
commercial banks. It is a financial intermediary that performs a variety of services for businesses and
some governments.
Insurance Companies
● Pool risk by collecting premiums from a large group of people who want to protect themselves and/or
their loved ones against a particular loss, such as fire, car accident, illness, lawsuit, disability or death.
Brokerages
● Acts as an intermediary between buyers and sellers to facilitate securities transactions.
Investment Companies
● Is a corporation or a trust through which individuals invest in diversified, professionally managed
portfolios of securities by pooling their funds with those of other investors.

Nonbank Financial Institutions

Technically banks but provide some of the same services as banks.

Savings and Loans

● Also known as S&L or Thrift Banks
Credit Unions
● Another alternative to regular commercial banks, typically offer higher rates on deposits and charge
lower rates on loans in comparison to commercial banks.

Financial Markets

1. Capital Markets - one of which individuals trade financial securities

a. Stock Market - allow investors to buy and sell shares in publicly traded companies. One of the
most vital areas of market economy as they provide companies with access to capital and
investors with a slice of ownership.
b. Bonds Market - a bond is a debt investment in which an investor loans money to an entity
(corporate or government), which borrows the funds for a defined period of time at a fixed
interest rate.
2. Money Market - is a segment of the financial market in which financial instruments with high liquidity
and very short maturities are traded.
3. Foreign Exchange (FOREX) and the Interbank Market - the interbank market is the financial system
and trading of currencies among banks and financial institutions. It is open 24 hours a day, five days a
week, 7 days for those located in malls.
4. Primary Market - issues new securities on an exchange.
5. Secondary Market - is where the bulk of exchange trading occurs each day. They exist for other
securities as well, such as when funds, investment banks, or entities.
6. OTC Market - over the counter market is a type of secondary market also referred to as dealer market.

Financial Instruments

Cash Instruments
● The values of cash instruments are directly influenced and determined by the markets. These can be
securities that are easily transferable. It can also be deposits and loans agreed upon by borrowers and
lenders.
Derivatives
● Is a financial contract with a value that is derived from an underlying asset. The value and
characteristics of derivative instruments are based on the instrument’s underlying components, such as
assets, interest rates or indices.

Asset Classes

1. Short Term Debt-Based - last for one year or less. Securities of this kind come in the form of:
a. Treasury Bills or T-Bills - a short dated government security, yielding no interest but issued at a
discount on its redemption price.
b. Commercial Papers - promissory notes issued by financial institutions or large firms with very
short to short maturity period; usually 2 to 30 days, and not more than 270 days, and secured by
the reputation of the issuer.
2. Long Term Debt-Based - last for more than a year. Under securities these are:
a. Bonds - debt security, similar to an IOU. Borrowers issue an amount of time. When you buy a
bond, you are lending to the issuer, which may be a government, municipality, or corporation
b. Cash Equivalents - investment securities that are short term investing, and they have high credit
quality and are highly liquid.
3. Equity Based
a. Securities - financial instruments are stocks/shares of ownership in a corporation.

Unit 2: Financial Planning

A company’s financial statements provide vital information about its financial health. These statements
are compiled based on day to day bookkeeping that tracks funds flowing in and out of the business. Financial
Statements are useful for making decisions regarding expansion and financing.

The basic Financial Statements and their uses

Financial Statements represent a formal record of the financial activities of an entity. These are written reports
that quantify the financial strength, performance and liquidity of a company. Financial statements reflect the
financial effects of business transactions and events on the entity.

Four Types of Financial Statements

1. Statement of Financial Position
2. Income Statement
3. Cash Flow Statement
4. Statement of Changes in Equity

Illustrative Financial Planning Process

Budgeting is the process of creating a plan to spend your money. This spending plan is called Budget.

Sales Budget
 ● Is the first and basic component of the master budget and it shows the expected number of sales units
of a period and the expected price per unit.
Production Budget
● Is a schedule showing planned production in units which must be made by a manufacturer during a
specific period to meet the expected demand for sales and the planned finished goods inventory.

Unit 3: Working Capital Management

Interpreting the Working Capital

Net Working Capital = Total Current Asset - Total Current Liabilities

Working Capital Management

● Refers to a company’s managerial accounting strategy designed to monitor and utilize the two
components of working capital, current assets and current liabilities, to ensure the most financially
efficient operation of the company. The primary purpose of working capital management is to make
sure the company always maintains sufficient cash flow to meet its short term operating costs and short
term debt obligations.
● Good management of working capital allows business organizations to meet maturing obligations on
time.

CURRENT ASSETS CURRENT LIABILITIES

● Cash ● Trade (Accounts) Payable

● Receivables ● Accrued Expenses
● Inventories ● Notes Payable - short term
● Prepaid Expense

Concepts of Working Capital Management

● Working capital management commonly involves monitoring cash flow, assets and liabilities through
ratio analysis of key elements of operating expense, including the working capital ratio, collection ratio,
and the inventory turnover ratio.
● Efficient working capital management helps with a company’s smooth financial operations, and can also
help to improve the company’s earnings and profitability.
● Management of working capital includes inventory management and management of accounts
receivable and payable.

Elements of Working Capital Management

● The working capital ratio, calculated as current assets divided by current liabilities, is considered a key
indicator of a company’s fundamental financial health since it indicates the company’s ability to
successfully meet all of its short term financial obligations

Ratio Analysis

1.2 - 2.0 ● Adequate working capital

● Considered desirable

Less than 1 ● Negative working capital

● Generally indicative of a company having
trouble meeting short term obligations,
usually due to insufficient cash flow.
 Greater than 2 ● Excess money; too much inventory; poor
credit management (receivables)
● Indicate a company is not making the most
effective use of its assets to increase
revenues.

● The collection ratio, also known as the average collection period ratio, is a principal measure of how
efficiently a company manages its accounts receivable. The collection ratio is calculated as the number
of days in an accounting period such as one month, multiplied by the average amount of outstanding
accounts receivable, with that total then divided by the total amount of net credit sales during the
accounting period.

Management of Working Capital Accounts

1. Managing Cash
● Basic internal control
○ Custodial and recording function
● Cash collections
○ Supported by official receipts
○ Deposit slips
● Cash Disbursements
○ Check voucher
● Petty cash fund management
○ Petty cash fund custodian
○ Petty cash voucher

2. Accounts Receivable Management

● Credit Management
○ Credit score
○ Collection of receivables
○ Aging of receivables (overdue - bad debts)
● 5 C’s of Credit
○ Character
■ A lender will look at a borrowers reputation and standing in the local ag
community
○ Capital
■ A borrower's personal investment in the ag operation
○ Capacity
■ A borrower’s ability to repay the loan based on current income and debt.
○ Collateral
■ Lenders will evaluate the land being used to secure the loan.
○ Conditions
■ The state of the overall economic environment, including interest rates and
purpose of the loan.
3. Inventory Management
● Levels of Inventories
○ Just-in-time
○ FIFO Method (First In First Out)
○ LIFO Method (Last In First Out)
○ Weighted Average
○ ABC Analysis
■ Category A - Accurate Forecast, Senior Level Involvement, Strict Degree of
Control
■ Category B - Approximate Forecast, Middle Level Involvement, Moderate Degree
of Control
■ Category C - No Forecast, Junior Level of Involvement, Relaxed Degree of
Control
Unit 4: Sources and uses of Short Term and Long Term Funds

01 Distinction between Short-Term and Long-Term Funds

Short Term Financing

Uses of Short Term Funds

● To sustain occasional rise in demand for its goods and services
● Payment for short term obligations
● Funding for short-term projects or programs
● Allowance for receivables
● Funding for unforeseen events

Sources of Short Term Funds

● Suppliers credit
● Advances from stockholders
● Credit cooperatives
● Banks
● Lending companies
● Informal lending sources

Financial Instruments
1. Commercial Papers - promissory notes
2. Asset backed commercial papers - other financial assets serve as collateral
3. Asset based loan - Loan that is backed by the assets of the firm
4. Repurchase Agreements - agrees to buy financial securities and resell them back

Long Term Financing

Uses of Long Term Funds

● Acquisition of machineries and equipment
● Acquisition of furniture and fixtures
● Building of a new plant
● Major upgrade of facilities
● Acquisition of an existing firm
● To organize a new venture or additional strategic business unit

Sources of Long Term Funds

● Equity Financing
● Corporate Bonds
● Capital Notes
● Internally Generated Funds
● Banks

02 Debt and Equity Financing

EQUITY DEBT

ADVANTAGES

1. Less risky than debt 1. Retain ownership

2. No future obligations 2. Interest is tax deductible
3. Gain investor network 3. No future obligations
4. No fixed timeline 4. Variety of terms/rates

DISADVANTAGES

1. Shared decision making 1. Must repay in future

2. Potentially more expensive 2. Usually requires collateral
3. Investor pressure 3. Impacts cash flow