Business Finance Your possible answers:

First Semester, School Year 2023-2024 • Ask from parents • Borrow from a friend • Banks
Content Standards: • Fund raising activities • Pawnshops • 5/6
The learners demonstrate an understanding of the definition of finance, the activities of
the financial manager, and the financial institutions and markets. These answers are sources of funds. When faced with financial difficulties (in this case,
Performance Standards: the lack of funds to meet the current expenses) we look for people or institutions that will
The learners will be able to: give us the money we need.
(1) define Finance (2) describe who are responsible for financial management within an
organization (3) describe the primary activities of the financial manager (4) describe So . . . for individuals:
how the financial manager helps in achieving the goal of the organization, and (5) Finance is concerned with decisions about:
describe the role of financial institutions and markets. How much of your earnings you spend
Most Essential Learning Competencies How much you save or how much you need
The learners shall be able to: How you invest your savings
(1) explain the major role of financial management and the different individuals involved How you raise additional funds you need (Gitman)
(2) distinguish a financial institution from financial instrument and financial market, and
(3) explain the flow of funds within an organization – through and from the enterprise— Owning a Business
and the role of the financial manager. Forms of business organizations:
Sole Proprietorship - A business owned by one person and operated for his or her own
Lesson 1 - The Major Role of Financial Management and the Different profit.
Individuals Involved
Partnership - A business owned by two or more people and operated for profit.
What I Know?
Choose the letter of the best answer. Write the chosen letter on a separate sheet of Corporation – An entity created by law owned by shareholders.
paper.
1. The primary goal of the financial manager is How can you become shareholders of a corporation? by buying stocks
A. minimizing risk. C. maximizing wealth. How and where can you buy stocks? from Corporations which may either be privately
B. maximizing profit. D. minimizing return. owned or publicly owned
2. These companies are owned by unrelated investors and are traded
in organized exchanges like the Philippine Stock Exchange. Privately owned corporations are often owned by family members whose stocks may not
A. Privately owned corporations B. Publicly owned corporations be offered to outsiders unless consent by the family members is secured.
B. Publicly owned corporations D. Subsidiary Corporations
3. Profit maximization as the goal of the firm is not ideal because Companies which are publicly listed are owned by unrelated investors and are traded in
A. profits are only accounting measures. organized exchanges like the Philippine Stock Exchange. While there are many
B. cash flows are more representative of financial strength. stockholders, there is generally a group of investors or a family which controls each
C. profit maximization does not consider risk. listed company.
D. profits today are less desirable than profits earned in For example, in the case of BPI, the biggest stockholder is Ayala Corporation and in the
future years. case of Banco De Oro, it is SM Investment Corporation.
4. The key variables in the owner wealth maximization process are
A. earnings per share and risk. Prices of stocks of listed corporations are driven by several factors such as:
B. cash flows and risk. -the earnings of the companies
C. earnings per share and share price. -the prospects of the industry where these companies operate
D. profits and risk. -the general market sentiment, and
5. Financial managers evaluating decision alternatives or potential actions must -the economic prospects of the country, among others.
consider
A. only risk. C. both risk and return. Factors that Influence Market Price
B. only return. D. risk, return, and the impact on share price. Controllable by Management Uncontrollable External Factors
profitability Macroeconomic conditions
Finance in Everyday Life having a good liquidity and
Imagine your life as a student. What are the activities you reasonable leverage position political stability
do from early Monday morning until Friday afternoon?
prospects of the industry where the
What period of the day you like most? What subject lesson is
dividends company operates
easily understood and if there are assignments/activities, how
competent management which affects
much of your allowance can be spent?
the company’s operating efficiency general market sentiment
What about your friends? How are you communicating with them? coming up with corporate plans that flow of foreign funds invested in the
Do you still have money for e-load? What if, you agreed for a improve the business prospects of the Philippine stock market
company
weekend activity (of course that one that relates with your
academic subjects), how much amount will you allot for it?

Activity 1.1 On a sheet of paper, answer the following questions (within 10

minutes):
A. How much is your daily allowance? If not given daily, how much is
your average allowance per day?
B. Write down all the items you spend money on. List the description
and peso amount spent.
C. Compute for the balance of your allowance by deducting the
expenses you listed from your daily allowance.
D. If the answer to Question C is positive, what do you do with the
money left? If the answer is negative, where do you get additional
money?
Relevant Vocabulary
Most of the activities you do involving decisions on where to use your allowance is a Shareholders
finance decision. The shareholders elect the Board of Directors (BOD). Each share held is equal to one
voting right. Since the BOD is elected by the shareholders, their responsibility is to carry
Finance out the objectives of the shareholders otherwise, they would not have been elected in
- can be defined as the science and art of managing money. (Gitman & that position.
Zutter, 2012)
Budgeting Board of Directors is the highest policy making body in a corporation.
the act of estimating revenue (in the form of your allowance) and expenses over a period primary responsibility is to ensure that the corporation is operating to serve the best
of time (in this case, on a daily basis). interest of the stockholders.
Your excess money presents an opportunity for investments. Among their responsibilities are:
-Setting policies on investments, capital structure and dividend
Investments come in many forms that will generate income or appreciate in the future. policies.
- Approving company’s strategies, goals and budgets.
Have you experienced a situation where you were short of cash? What did you do? - Appointing and removing members of the top management including
Where did you get extra cash? What other sources of cash do you know? the president.
- Determining top management’s compensation. • To plan for this, the Financial Manager should be able to make use of Financial
- Approving the information and other disclosures reported in the Planning tools such as budgeting and forecasting. Moreover, the company should
financial statements (Cayanan, 2015). choose which type of investment it should invest in that would provide a most optimal
risk and return trade off.
President (Chief Executive Officer)
The roles of a president in a corporation may vary from one company to another. Long term investments should be supported by a capital budgeting analysis which is
Among the responsibilities of a president are the following: among the responsibilities of a finance manager.
-Overseeing the operations of a company and ensuring that the • Capital budgeting analysis is a tool to assess whether the investment will be profitable
strategies as approved by the board are implemented as planned. in the long run. This is a crucial function of management especially if this investment
- Performing all areas of management: planning, organizing, staffing, would be financed by debt.
directing and controlling. • The lenders should have the confidence that the investments that management will
- Representing the company in professional, social, and civic push through with will be profitable or else they would not lend the company any money.
activities.
Knowing the Shareholders and Measurement of the Shareholder’s Wealth
VP for Marketing Assume that you bought 10 shares of Globe Telecom at PHP2,510 each on
Responsibilities of VP for Marketing: September 9, 2019. This brings your investments to PHP25,100. What happens to the
- Formulating marketing strategies and plans. value of your investment if the price goes up to PHP2,600 per share or it goes down to
- Directing and coordinating company sales. PHP2,300 per share?
- Performing market and competitor analysis. Shareholders’ wealth is measured based on the current market price of the
- Analyzing and evaluating the effectiveness and cost of marketing corporation’s stocks. The market price changes across different periods. Hence, the
methods applied. value of your investment changes in different points of time based on the market value at
- Conducting or directing research that will allow the company identify that time.
new marketing opportunities, e.g. variants of the existing
products/services already offered in the market. - Promoting good Discussion:
relationships with customers and distributors (Cayanan, 2015). An increase of the share price to PHP2,600 per share means that people are
willing to buy the shares for that amount. If you were to sell your shares at this point, it
VP for Production will result to a profit of PHP90 per share or PHP900 on your whole investment. Hence,
Responsibilities: the value of your investment increased from PHP25,100 to PHP26,000. Therefore, there
-Ensuring production meets customer demands is an increase in shareholder’s wealth.
-Identifying production technology/process that minimizes production On the other hand, a decrease in the share price to PHP2,300 per share means
cost and make the company cost competitive. that people are only willing to buy shares for PHP2,300. If you were to sell your
-Coming up with a production plan that maximizes the utilization of the investment at this point, you will receive PHP23,000 which would result to a loss of
company’s production facilities. PHP2,100. The decrease in the value of your investment leads to a decrease in
-Identifying adequate and cheap raw material suppliers (Cayanan, shareholder’s wealth.
2015).
What’s more? (Use one whole sheet of paper)
VP for Administration A. Copy and answer the following statements:
Responsibilities: 1. Most of the activities you do involving decisions on where to use
-Coordinating the functions of administration, finance, and marketing your allowance is a ________.
departments. 2. ________ is the act of estimating revenue and expenses over a
-Assisting other departments in hiring employees. period of time.
-Providing assistance in payroll preparation, payment of vendors, and 3. Excess money presents an opportunity for_________.
collection of receivables. 4. A corporation is an entity created by law owned by ___________.
-Determining the location and the maximum amount of office space 5. What is meant by the acronym PSE?
needed by the company. Identifying means, processes, or systems B. Briefly answer the following essay questions:
that will minimize the operating costs of the company. (Cayanan, 2015) 1. Why is the study of finance important to you?
2. Some people say that employees seldom get rich but businessmen
Finally, focus your attention to the role of the VP for Finance as this is where the rest of do. Trusting on your knowledge and skills your parent would give
the topics for this course will revolve. you PHP20,000.00 to invest, what form of business organization
would you prefer to engage into? Why?
Quotes from the CFOs of respective corporations
Unilever: ―Finance plays a critical role across every aspect of our business. We enable
the business to turn our ambition and strategy into sustainable, consistent and superior
performance‖ - Jean-Marc Huët (Unilever) Assessment: Choose the letter of the best answer. Write the chosen letter on a
Jollibee: ―It’s very exciting because you are not just thinking of today but what the separate sheet of paper.
company will need in the future‖ - Ysmael V. Baysa (Morales, 2013) - 1. Small business owners must have a solid understanding of the
Globe Telecom: ―Yesterday’s solutions are never adequate for the future‖ - Albert De principles of finance to keep their companies________.
Larrazabal (Klobucher, 2015) A.Sustainable B. Profitable C. Reliable D. Valuable
SM Corporation: ―Now, we don’t go out because we need funds. We go out because it’s 2.These are assets that can be traded.
an opportunity.‖ – Jose T. Sio (Montealegre, 2015) A. Inventories C. Financial Instruments
Reflect on these quotes and realize how critical and dynamic working in the finance field B. Precious Stones D. Buildings
is. 3. The business firm receives cash from customers for goods that were
bought on account. To record such transaction, the bookkeeper
Functions of a Financial Manager must debit cash and credit ________.
-Financing -Investing - Operating - Dividend Policies A. Sales C. Purchases
Financing decisions include making decisions on how to fund long term investments B. Accounts Receivable D. Accounts Payable
(such as company expansions) and working capital which deals with the day to day 4. Corporate owner's receive realizable return through
operations of the company (i.e., purchase of inventory, payment of operating expenses, A. earnings per share and cash dividends.
etc.). B. increase in share price and cash dividends.
C. increase in share price and earnings per share.
• The role of the VP for Finance or the Financial Manager is to determine the appropriate D. profit and earnings per share.
capital structure of the company. Capital structure refers to how much of your total 5. Wealth maximization as the goal of the firm implies enhancing the
assets is financed by debt and how much is financed by equity. wealth of
A. the Board of Directors. C. the federal government.
Assets = Liabilities + Owner’s Equity B. the firm's employees. D. the firm's stockholders.
To be able to acquire assets, our funds must have come somewhere. If it was bought
using cash from our pockets, it is financed by equity.
if we used money from our borrowings, the asset bought is financed by debt.

Is there an ideal mix of debt and equity across corporations? Answer: No.
The mix of debt and equity varies in different corporations depending on management’s
strategies. It is the responsibility of the Financial Manager to determine which type of
financing (debt or equity) is best for the company.
Investing Decisions
Investments may either be short term or long term.
- Short term investment decisions are needed when the company is in an excess cash
position.