Ahavah R.

Devanadera, CPA
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Supplementary Materials
Business Finance
Chapters 1 to 3
Class Lecture – Day 1
For LC Senior High Students - ABM
Ahavah R. Devanadera, CPA
Preparer

© 2013 Grant Thornton International Ltd. All rights reserved.

Discussion Outline
Topic
A. The Role of Business Finance
A.1 Meaning of Business Finance – Day 1
A.2 What is the objective of the Firm? – Day 1
A.3 Finance Organizational Structure – Day 1
B. The Business, Tax, and Financial Environments -
B.1 The Business Environment - Day 1
B.2 The Tax Environment – Day 2
B.3 The Financial Environment – Day 3

© 2022 Ahavah R. Devanadera, CPA. Presentation.

A. THE ROLE OF BUSINESS
FINANCE

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 What is Business Finance?
Concerns the use of money for
generating income,
it involves the activities of
acquisition, financing, and
management of assets with overall
goal (i.e. to earn profit) in mind.
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Investment/Acquisition
• How big or what size should the
firm?
• What specific assets should be
purchased?
• What assets (if any) should be
disposed or sold?
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Financing
• What is the best kind of financing?
• What is the best financing mix or
combination?
• What is the best dividend policy?
• Where will the funds be physically
sourced from?
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Asset Management
• How do we manage existing assets
efficiently?
• Financial Manager has varying degrees of
operating responsibility over assets.
• Greater emphasis on current asset
management than fixed asset
management.
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

What is the objective of the Firm?
Maximization of
Shareholder/Owner
Wealth!
Value creation occurs when
we maximize the share price
for current shareholders.
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 The Modern Corporation

CORPORATION
SHAREHOLDER/
MANAGEMENT
OWNERS

Agents of the
Principals of the firm
owners of the firm

Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Finance Organizational
Structure

Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Finance Organizational
Structure

Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

B. The Business, Tax, and
Financial Environments

© 2022 Ahavah R. Devanadera, CPA. Presentation.

The Business Environment
Philippines three basic forms of
business organization

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 The Business Environment
Sole Proprietorship -- A business
form for which there is one owner.
This single owner has unlimited
liability for all debts of the firm.
 Oldest form of business organization.
 Business income is accounted for on
your personal income tax form (BIR Form 1701).
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

Summary for Sole Proprietorship
Advantages Disadvantages
 Simplicity  Unlimited liability
 Low setup cost  Hard to raise
 Quick setup additional capital
 Transfer of
 Single tax filing
on individual form ownership
difficulties
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 The Business Environment
Partnership -- A business form in
which two or more individuals
act as owners.
 Business income is accounted
for on each partner’s personal
income tax form . (BIR form 1702)

Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 Types of Partnerships
General Partnership -- all partners have
unlimited liability and are liable for all
obligations of the partnership.
Limited Partnership -- limited partners
have liability limited to their capital
contribution (investors only). At least
one general partner is required and all
general partners have unlimited liability.
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

Summary for Partnership
Advantages Disadvantages
 Can be simple  Unlimited liability for
 Low setup cost, higher the general partner
than sole  Difficult to raise
proprietorship additional capital, but
 Relatively quick setup easier than sole
proprietorship
 Limited liability for
 Transfer of ownership
limited partners
difficulties
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

 The Business Environment
Corporation -- A business form
legally separate from its owners.
 An artificial entity that can own assets
and incur liabilities.
 Business income is accounted for on
the income tax form of the corporation
(BIR Form 1702).
Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.

Summary for Corporation
Advantages Disadvantages
 Limited liability  Double taxation
 Easy transfer of  More difficult to
ownership establish
 Unlimited life  More expensive
 Easier to raise large to set up and
quantities of capital maintain

Adapted from Fundamentals of Financial Management, 11/e, Gregory A. Kuhlemeyer, Ph.D., © 2001 Prentice-Hall, Inc.

© 2022 Ahavah R. Devanadera, CPA. Presentation.