Forms of business organizations:

1.Sole Proprietorship - A business

owned by one person and operated
for his or her own profit.
2.Partnership - A business owned
by two or more people and operated
for profit.
3. Corporation – An entity created
by law owned by shareholders
 Ask how and where can you buy stocks?
- 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.
- Companies which are publicly listed are owned by unrelated
investors and are traded in organized exchanges like the
Philippine Stock Exchange. While there are many stockholders,
there is generally a group of investors or a family which controls
each listed company. For example, in the case of BPI, the biggest
stockholder is Ayala Corporation and in the case of Banco De Oro,
it is SM Investment Corporation. Prices of stocks of listed
corporations are driven by several factors such as the earnings of
the companies, the prospects of the industry where these
companies operate, the general market sentiment, and the
economic prospects of the country, among others
QUESTION:
If you are the biggest shareholder
in a corporation, what objectives
will you achieve as owners of the
corporation?
DO YOU THINK A PROFITABLE
COMPANY IS A SUCCESSFUL
COMPANY?
Is it possible that a company
can have profits but still does
not have enough cash to pay its
obligations (i.e. suppliers,
lenders)?
What will happen if the
company cannot pay its
obligations?
The objective of a company is a
WEALTH MAXIMIZATION.
 Post the question of how do we measure
shareholders wealth?
Simplify the example.
- Assume a learner bought 10 shares of Globe
Telecom at PHP2,510 each on September 9,
2010. This brings his investments to
PHP25,100. What happens to the value of his
investment if the price goes up to PHP2,600
per share or it goes down to PHP2,300 per
share?
An increase of the share price to
PHP2,600 per share means that people
are willing to buy the shares for that
amount. If the learners were to sell
their shares at this point, it will result
to a profit of PHP90 per share or
PHP900 on their whole investment.
Hence, the value of their investment
increased from PHP25,100 to
PHP26,000. Therefore, there is an
increase in shareholder’s wealth.
On the other hand, a decrease in the
share price to PHP2,300 per share
means that people are only willing to
buy shares for PHP2,300. If the
learners were to sell their investment
at this point, they will receive
PHP23,000 which would result to a
loss of PHP2,100. The decrease in value
of their investment leads to a decrease
in shareholder’s wealth.
 Shareholders’ wealth is measured
based on the current market price
of the corporation’s stocks. The
market price changes across
different periods. Hence, the value
of your investment changes in
different points on time based on
the market value at that time.
What do you think are the factors
which can affect market prices?