Business

VP for Marketing – in charge of the

marketing department.

Finance VP for Production – in charge of the

production department.

VP for Administration – in charge of the

Handouts 1: Business Finance
administration department and
Finance coordinates with the function of other
departments as well.
1. Gitman & Zutter, 2012:
VP for Finance – they are also called the
Finance is the science and art of financial manager and they are in charge
managing money. of determining the capital structure of the
company.
2. Guthaman & Dougall:
Primary Functions of Financial
Finance is an activity concerned with
planning, developing, managing,
Managers
administering, and increasing of the 1. Financing Decisions
capital used for business purposes. 2. Investing Decisions
3. Operating Decisions
3. Ivan Thompson
4. Dividend Policies
Finance comes from the Latin “finis”
which means end or finish. Its implications
affect both individuals and businesses, Handouts 2: The Financial
organizations, and states it has to do with
System
obtaining and using or money
management. Saving comes from households, individual,
companies, government agencies, and
Financial Management
other entity (savers) whose cash inflow
- it concerns decisions with the goal are greater than their cash outflows. It is
of maximizing the shareholder’s also the source of the financial system.
wealth. Financial Intermediaries provide a
- Managers are responsible for mechanism by which the savings are
making the decisions. directed to the user of funds, borrowers,
Organizational Structure and investors.

Board of Directors – highest policy-making
body in a corporation.
Presidents (CEO) – performing all the
areas of management and overseeing the
whole operation of the company and
ensuring to implement the policies of the
board.
Users are the one who needs funds to
finance their needs/corporation. These
include households, individuals,
corporations/companies, and government
agencies.
The Financial Institution, Financial
Instrument, and Financial Market
Financial Institution - provides a broad
range of business and services including
banking, insurance, and investment
management.
Ex. Commercial Banks, Insurance
Companies, Mutual Funds, and Pension
Funds.
Financial Instruments – a document
representing a legal agreement involving
some sort of monetary value.
Ex. Financial Assets, Financial Liabilities,
Equity Instrument, and Debt Instruments.
Financial Market – this is where the
creation and trading of financial assets
take place. It is classified into 2
comparative groups: Primary vs Secondary
Market and Money Market vs Capital
Market.
Handouts 3: Wealth
Maximization
Wealth maximization is a process of
increasing the value of a business in order
to increase the value of shares held by its
stockholders. (Cayanan, 2017)
Note: Profits and losses are only
recognized once you sold the shares to
other investors.
Profits and Loss Per Share
Formula:
Selling price of the shares – Acquired
price of the share
Profit and Loss on Investment
Formula:
STEP 01: Compute for the Value of
Investment Acquired
STEP 02: Subtract the current selling
price/ value of investments on the
investments Acquired
Handouts 4: Financial Statements
Financial statements are written
records that convey the business
activities and the financial
performance of a company. (Murphy,
2022)
Income Statement
It mainly focuses on the
company’s revenues and expenses during
a particular period.
Formula: Revenue – Expenses = Net
Income
Balance Sheet
it displays the company’s total
assets and how these assets are financed,
either through debt or equity.
Formula: Assets = Liabilities + Equity
Statement of Cash Flow
is a financial statement that
summarizes the movement of cash and
cash equivalents (CCE) that come in and go
out of a company. These movements can
be traced from 3 activities which are the
operating, investing, and financing
activities. The main focus of this statement
is the movement of cash and the net
increase/decrease of cash. To get the net
increase or decrease in cash, just total the
Cash flow from the 3 Activities.
Operating Activities - include cash
activities related to net income.
Investing Activities - include cash activities
related to noncurrent assets.
Financing Activities - include cash activities
related to noncurrent liabilities and
owners’ equity.
Statement of Changes in Equity
is the reconciliation between the
opening balance and closing balance of
shareholder’s equity and summarize the
transactions related to the shareholder’s
equity in an accounting period.
Order of Financial Statement
Preparation
SCI SCE SFP CFS
Handouts 5: Financial
Measurement Levels and
Financial Ratios
Financial Measurement Levels
analysis and interpretation of
financial statement is through determining
the measurement levels as to the firm’s
solvency, stability, liquidity and its
profitability.
Financial Measurements
1. Liquidity – company’s ability to
pay their short-term debts.
a. Current ratio - ratio of
current assets to current
liabilities, meaning the
firm’s ability to pay its
current debt.
b. Quick ratio - also called
Acid Test Ratio and is only
considering the quick
assets.
c. Working Capital ratio - e
business’ ability to pay its
current liabilities with the
use of its current assets.
2. Solvency- company’s ability to pay
its long-term debts.
a. Debt to Asset ratio - a
company’s ability to pay
off its liabilities with its
assets and shows a ratio
of total debt to total
assets.
b. Debt to Equity ratio - he
ratio of total debt to
owner’s equity/
shareholder’s equity
c. Equity ratio - ratio of the
business assets that are
financed by capital.
3. Stability - long- term counter part
of liquidity or the company’s
ability to be structurally firm and
can support its long-term debts by
its equity
a. Debt to Equity ratio - he
ratio of total debt to
owner’s equity/
shareholder’s equity
b. Interest Cover Ratio -
shows how many times a
business’s interest
expense on its loans/
credits are covered by its
operating profit.
4. Profitability - company’s ability to
convert its sales into cash flow
and profit.
a. Gross Margin ratio - ratio
of gross profit to sales.
b. Operating Margin ratio - e
ratio of operating profits
to sales.
c. Net Income Margin ratio -
e ratio of net income
margin to sales.
d. Return on Assets - e ratio
that measures the peso
value of income generated
 by using the business
assets.
e. Return on Equity -
measures the return
generated by the owner’s
capital invested in the
business.
Formulas:
Current Assets
Current Ratio ¿
Current Liabilities
Quick Assets
Quick Ratio ¿
Current Liabilities
Working Capital Ratio = Current Assets
– Current Liabilities
Total Liabilitites
Debt to Asset Ratio ¿
Total Assets
Total Liability
Debt to Equity Ratio ¿
Total Equity
Total Equity
Equity Ratio ¿
Tota Asstes
Operating Profit
Interest Cover Ratio ¿
Interest Expense
Handouts 6: Financial Planning
Tools and Concepts
Financial statements
a process of estimating the capital
required and determining its competition
and framing financial policies in relation to
procurement, investment and
administration of funds of an enterprise.
The Financial Planning Process
Steps in financial planning:
1. Set goals or objectives.
2. Identify resources.
3. Identify goal-related task.
4. Establish responsibility centers for
accountability and timeline.
5. Established an evaluation system
for monitoring and controlling.
6. Determine contingency plans.
Preparation of Budgets
Budget – a description in quantitative
usually monetary terms of desired future
result.

Gross Margin Types of Budget:

Gross Margin Ratio ¿
Net Sales 1. Sales Budget – is a prediction of
the firm’s sales over a specific.
Operating Profit 2. Production Budget – related to the
OMR ¿
Net Sales production that the management
think that the business should
Net Income produce in the upcoming period.
NIMR =
Net Sales 3. Cash Budget – a statement of the
firm that has planned inflows and
Net Sales
ROA ¿ outflows of cash.
Ave . Total Asssets
Projected Financial Statements
Net Sales is a tool of the company to set an
ROE ¿
Ave . Total Equity overall goal of what the company’s
performance and position will be for and STEP 3. CONSIDER FINANCING
as of the end of the year. It sets targets to FEEDBACKS.
control and monitor the activities of the
company.

Application of the Projected Financial Handouts 7: Sources of Short

Statements Approach
STEP 1. FORECAST THE INCOME
STATEMENT
a. Establish a sales projection
b. Project the cost of sales
c. Prepare the production schedule
and project the corresponding
production costs, direct materials,
direct labor and overhead for
manufacturing companies)
d. Estimate selling and
administrative expenses.
e. Consider financial expenses if any
f. Determine the net profit
STEP 2. FORECAST THE STATEMENT OF
FINANCIAL POSITION.
a. Project the assets needed to
support projected sales.
b. Project funds generated (through
accounts payable and accruals)
and by retained earnings through
profits generated.
c. Project liability and stockholder’s
equity accounts that will not rise
spontaneously with sales (e.g.,
notes payable, long-term bonds,
preferred stock, and ordinary
shares) but may change due to
financing decisions made later.
d. Determine if additional funds
needed by using the following
Formula: Additional Funds
Needed (AFN) = Required
Increase in Assets - Spontaneous
Increase in Liabilities - Increase in
Retained earnings
Term and Long Term Funds:
Capital Financing
Types of Capital Financing
Debt Financing
 done through borrowing (utang)
 with interest
 cost of debt
 there is a borrower – lender
relationship
 includes bank loans, insurance of
debt, etc.
Equity Financing
 sales of ownership
 there is an investor - investee
relationship
 funds raise by the owner from
friends and family
 capital infusion
 dividends are paid by the business
Sources of Funds:
Bank - supervised and regulated by the
Bangko Sentral ng Pilipinas (BSP). It
includes commercial banks, thrift banks,
and rural and cooperative banks.
Credit Cooperatives - regulated and
supervised by the Cooperative
Development Authority (CDA). Its goal is
to improve the livelihood of its members.
Commercial Finance Companies -
organizations without a bank charter that
advances funds to businesses by
discounting notes receivable, making loans
secured by mortgage, or financing
deferred-payment sales of commercial T – time
and industrial equipment.
Compound Interest

is the interest paid on both the

Handouts 8: Long Term Financial principal and the amount of interest
Concepts accumulated in prior periods.

Formula:
Interest – considered as the cost of using
money over time. It is the excess of FV = P ( 1+i ) n
resources (usually cash) received or paid
over the amount of resources loaned or Where:
borrowed which is called the principal. FV = future value
Different Definition of Interest P = principal
“The payment made by borrower for the i = interest per compound interest period
use of a loan is called Interest.” – or periodic rate
MARSHALL
n = time period or number of compound
“Interest is the remuneration for mere interest periods
abstinences.”- JS MILL

“Interest is the reward of parting with

liquidity for a specified period.”- KEYNESS Handouts 9: Present and Future
“Interest is the return from the fund of
Value of Money
capital.”- SELIGMAN Value of Money
“Interest is primarily a reward for Present Value
waiting.”- RICHARD
 value of the money today
Types of Interest  also know as the discounted value
Simple Interest  PV = CF/ (1+r)n
o CF- Future Cash Flow
considered as the product of the o R- Discount Rate of
principal amount multiplied by the Return/Interest Rate
period’s interest rate (a one-year rate in o N- Number/ Period of
standard). years
Formula: Future Value
I = PxRxT  value of the money in the future
Where:  future value of the investment
after a certain period
I – interest  FV = PV (1+r)n
P – principal o PV- Present Value
o R- Discount Rate of
R – rate Return/Interest Rate
 o N- Number/ Period of
years

Handouts 10: Loan Amortization

Amortized Loan
a type of loan with scheduled,
periodic payments that are applied to both
the loan's principal amount and the
interest accrued.

Risk-Return Trade-Off
The riskier the investment, the
higher the possible return will be. As a
business owner, one must know how to
balance the risk and the potential return.

Risk – the uncertainty of returns.

Risk Aversion - individuals maximize

returns for a given level of risk or minimize
risk if the returns are the same.

Risk-averse - individuals would require a

higher return if the risk level increased.