Business Finance 2nd Semester PDF

Business Finance - 2ND Semester Lesson 1 - Introduction to Finance Finance -​ It encompasses the study and management of money, encompassing activities such as investing, borrowing, lending, budgeting, and saving -​ It is the lifeblood of the economy, enabling the efficient allocation...

Business Finance - 2ND Semester Lesson 1 - Introduction to Finance Finance -​ It encompasses the study and management of money, encompassing activities such as investing, borrowing, lending, budgeting, and saving -​ It is the lifeblood of the economy, enabling the efficient allocation of resources and supporting the growth and development of individuals, businesses, and nations Areas of Finance 1.)​ Private Finance -​ The management resources of private individuals, non-governmental organizations, and private organizations in accordance with the prescribed financial policy a.)​ Business Finance -​ It focuses on the handling and management of financial resources of a business organization ​ ​ Financial Capital Market Financial Investment Management It studies the different financial Includes business Focuses on capital institutions and their functions decisions about the value budgeting decision that provide assistance to both and price of stocks and or investment private and public borrowers of bonds, portfolio analysis, decision on the fund market analysis, security acquisition of assets analysis, and behavior of the investors b.)​ Personal Finance -​ A subcategory of the private finance which is directed towards the management of personal resources of an individual  2.)​ Public Finance -​ The allocation of government income generated from either taxation or borrowings and the government expenditure based on the approved national and local appropriation or budget Finance in a Business Organization Functions of Finance Officer A Finance Officer is a key professional responsible for managing the financial aspects of an organization. The duties encompass a wide range of responsibilities, including financial planning and analysis, budgeting and forecasting, managing financial reporting, and ensuring compliance with financial regulations The financial officer is heavily engaged in Marketing Decisions for the Business to attain its objectives at the optimum level. This decision-making function is classified into three: 1.)​ Operating Decisions - Financial decisions that affects the functional area of the firm, such as manufacturing, marketing, purchasing, and operating 2.)​ Investing Decisions - Deals with choosing small and large projects with several investment opportunities. The different projects are critically evaluated in terms of return of investment and expected cash flows 3.)​ Financing Decisions - Deals with raising or acquiring of funds from outside sources and not from the ordinary results of business operation Qualifications of a Finance Officer 1.)​ Knowledgeable about Accounting and Economics Principles -​ A Finance Officer should be able to understand and/or interpret financial statements, cash flow, financial marketing institutions, interest rates, and the effects of inflation on the business  2.)​ Familiar with Operations of the other Functional Areas -​ The Finance Officer must, therefore, be knowledgeable about operation science, quantitative statistics, marketing research, and even human resources. Substantial understanding of other specialized fields facilitates the making of financial and economic decisions 3.)​ Technically Equipped in Finance with Professional Judgment -​ The Finance Officer must likewise be technically exposed to bonds and stocks valuation including risk management and analysis, capital budgeting and structure, and leveraging the debts and resources 4.)​ With Good Communication Skills -​ A Finance Officer is expected to be able to clearly communicate financial messages to the people within and outside of the business 5.)​ With Favorable Relationships with Financial Institutions -​ A Finance Officer must have favorable business relationships with members of the financial industry. By working with them closely, they can provide strategic advantage to the business most especially when financial assistance is sought 6.)​ Ethically and Socially Responsible -​ A Finance Officer should also maintain an ethically and socially responsible behavior. Protecting the rights of the consumers and business community in general should be parallel with the embezzlement case and fraud practices Lesson 2: Financial Institutions and Markets Financial Institutions -​ A Business entity that provides services as an intermediary for different types of financial monetary transactions. Essentially, they act as a bridge between those who have money and those who need money -​ Key Functions: Accepting Deposits, Providing Loans, Facilitating Payments, and Managing Risk Financial Bank Institutions 1.)​ Commercial Bank -​ The most common type of bank. -​ Offers a wide range of financial services, including accepting deposits, lending money, providing credit cards, and facilitating Payments -​ Example: BDO, BPI, Metrobank 2.)​ Thrift Bank -​ Smaller than Commercial Bank and typically focus on savings and mortgage lending. They cannot engage in International Banking -​ Example: BPI Savings Bank, Philippine Savings Bank, RCBC Savings Bank 3.)​ Rural Bank -​ Primarily serve rural communities by providing financial services to farmers, fishermen, and small entrepreneurs. -​ Example: Emerald Rural Bank Inc, St. Maria Rural Bank, Gateway Rural Bank  4.)​ Special Government Bank -​ Fully or majority-owned by the government, established to provide medium and long-term credits to industrial, agricultural, and real estate sectors of the economy. -​ Example: Development Bank of the Philippines (DBP), Landbank of the Philippines (LBP), Philippine Amanah Bank Financial Non-Bank Institutions 1.)​ Investment Companies -​ Raise funds in the Capital Market by selling their own issues of securities, mainly common stock, to individual investors -​ Example: Manulife, Pru Life UK 2.)​ Financing Companies -​ Primarily focus on extending credit facilities to consumers and businesses. -​ They generate funds through borrowing, equity, or other sources to provide financial services -​ Example: BDO Unibank Inc., BPI, Puregold Financing 3.)​ Securities Dealers/Brokers -​ Facilitate the buying and selling of securities on behalf of clients -​ They also provide investment advice and market analysis -​ Example: SB Equities Inc., RCBC Securities Inc 4.)​ Pawnshops -​ Lend money in exchange for collateral, typically valuable items like jewelry or electronics -​ Example: Cebuana Lhuillier, Villarica Pawnshop, Palawan Pawnshop 5.)​ Insurance Companies -​ Provide financial protection against potential losses from unforeseen events -​ Example: Sun Life, Insular Life, BDO Life Insurance, Pru Life UK 6.)​ Lending Investors -​ Individuals or small entities that lend money directly to borrowers without going through traditional financial institutions -​ The main goal is to lend money and make profit from it 7.)​ Fund Managers -​ Professionals who manage investment portfolios on behalf of clients -​ It is engaged in the administration and management of property or money for their clients 8.)​ Government Service Insurance System (GSIS) -​ A government-owned social insurance corporation in the Philippines that provides life insurance, retirement benefits, and other social security programs for government employees 9.)​ Social Security System (SSS) -​ A government-owned social insurance corporation in the Philippines that provides retirement, disability, death, and other benefits to private sector employees Financial Market -​ A Financial Market is a marketplace where financial securities and derivatives are traded ar low transaction costs -​ It is essentially a platform that brings together buyers and sellers of financial instruments Key Functions of Financial Market -​ Price Discovery: Prices of assets (Stocks, Bonds, etc) are determined -​ Risk Management: Help individuals and businesses manage or reduce the risk they face -​ Liquidity: How easily assets can be bought or sold in the market without affecting the asset’s price Financial Markets Classifications Primary Market Secondary Market - This is where securities (stocks, bonds, etc) are - It is a marketplace where previously issued issued for the first time by a company or securities (stocks, bonds, derivatives) are bought government and sold among investors - This process is often referred to as an Initial - It is essentially a platform for investors to trade Public Offering (IPO) for stocks or a bond issue for securities without involving the original issuer debts securities - The funds raised from the Primary Market go directly to the issuer Money Markets -​ A financial market for short-term borrowing and lending -​ It deals with financial instruments that have a maturity period of less than a year -​ It is where institutions and governments can borrow and lend money for short-term needs -​ Example: Treasury Bills, Time Deposits Capital Markets -​ Places where people buy and sell long-term investments like stocks and bonds -​ It is where businesses raise money for big projects and where people can invest their savings for the long term -​ Example: Philippine Stock Exchange Interplay between Financial Institutions and Financial Markets -​ Financial Institutions participates in Financial Markets -​ Financial Markets provide investment opportunities -​ Market Information influences institutional decisions