Business Finance PDF

BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ planning, organizing, staffing, directing, controlling, WEEK 1 : INTRODUCTIO...

BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ planning, organizing, staffing, directing, controlling, WEEK 1 : INTRODUCTION TO FINANCIAL MANAGEMENT and evaluating. VICE PRESIDENT FOR SALES AND MARKETING FINANCE ​ are formulating business strategies and plans, directing ​ is a process that includes raising money or resources and and coordinating sales, making environmental allocating them effectively and efficiently to achieve the scanning or research that will allow the company to firm’s goals or objectives. increase sales, or identifying new market opportunities, ​ It includes financial management, the study of investment, analyzing and assessing the effectiveness and and the study of institutions and markets efficiency of the plans, methods and strategies applied and establishing a good relationship with customers and distributors FINANCIAL MANAGEMENT ​ is a decision-making process that includes planning, VICE PRESIDENT FOR ADMINISTRATION analysis, utilization, and acquisition of funds in order to ​ is responsible for the coordination of the different achieve the desired goals of the business. departments, providing assistance to the other ​ Financial management includes planning, organizing, department by determining the staff needed and assisting other departments in hiring employees and in controlling, and directing to acquire and utilize the payroll preparation. funds or resources effectively and efficiently. Every activity of the finance manager should be according to VICE PRESIDENT FOR PRODUCTION plan. It should be organized, controlled, monitored, and ​ makes sure that the production meets the demand, evaluated finds ways to minimize cost in producing a competitive quality product. FINANCIAL MANAGEMENT GOAL VICE PRESIDENT FOR FINANCE ​ Financial management deals with decisions that are ​ makes decisions including planning, acquiring and supposed to maximize the value of shareholders’ wealth utilization of funds.. INVESTING DECISION SOURCES OF FINANCE ​ deals with managing the assets of the firms. Some of ​ An internal source of finance does not increase the debts of the examples of investment decisions are the allocation the business-like profit, savings, and sale of unwanted assets. of funds, determination of the funds that a firm can put ​ An external source of finance is provided by people or into investment, evaluation, and selection of capital institutions investment proposal. outside the business that creates debt and requires payment like loans. FINANCING DECISION CORPORATE ORGANIZATION STRUCTURE ​ includes making decisions on how to finance the long-term investments (expansions or acquisition of new land) and working capital which deals with the SHAREHOLDERS day-to-day operations of the company (payment of ​ The Shareholders elect the Board of Directors (BOD). rent and utilities, purchase of raw materials.) Each share is equal to one voting right. They buy shares to earn a profit in a form of dividend. OPERATING DECISION BOARD OF DIRECTORS ​ deals with working capital management. Working capital refers to short-term assets and short-term ​ is the highest position in a corporation. Some of their liabilities. Inventory, receivables, cash, and short-term responsibilities are providing direction of the company, investments are examples of short-term assets. setting the policies on investments, approving the company’s strategies, goals, and budgets, appointing, DECLARATION OF DIVIDENDS and removing members of the top management. ​ refers to the determination of how much dividends are SUPERVISOR to be distributed to the shareholders, frequency of ​ supervises the company’s operations and ensures that payments and amounts to be retained by the firm. the strategies are well executed and planned. He/She ​ Dividend is a portion of profit or payment made by a also performs all areas of management such as corporation to its shareholders. ​ ​ Good luck bading! | Page 1 BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ WEEK 2 : INTRODUCTION TO FINANCIAL MANAGEMENT PART II FINANCIAL INSTITUTIONS ​ The financial institution’s role is to act as a financial intermediary. A financial intermediary serve as a link between the depositor who has the money and the lender who needs money. DEPOSITOR ​ the person who has the money and puts in a savings account with a bank that pools this together with the savings from other depositors. STOCKS BORROWER ​ are types of security that represent ownership in a corporation and a claim on part of the corporation’s ​ the one who needs funds and borrows it from a bank. assets and earnings. HOW FINANCIAL INTERMEDIARIES WORK? FINANCIAL INSTRUMENTS SHORT-TERM DEBTS (MONEY MARKET) ​ are contracts that represent a financial asset or liability. These are the tools that help a business’ daily ​ Money market instruments are funds available for a short time (1 year or less than a year). They are operations and help the finance manager handles available most of the time and do not provide very high his/her cash, his/her short-term operating returns. requirements , and long-term business requirements. BOND ​ is an example of long-term debt. It is a security reflecting the debts of a government’s or business’ debt promising to pay a fixed interest to the bondholder for a definite time. NOTE ​ another example of long-term debt that has a longer term than a money market instrument. Notes are similar to bonds that have regular interest payments and have a specified maturity term. LONG-TERM DEBTS (CAPITAL MARKET) ​ Money market instruments are funds available for a FINANCIAL MARKET long time (more than a year). They are available most ​ are the meeting places of suppliers and users of of the time and do provide very high returns. various types of funds that can make transactions directly. ​ ​ Good luck bading! | Page 2 BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ PRIMARY MARKET INVESTMENT COMPANIES ​ companies perform similar functions as banks in the ​ refers to financial market in which buyers and sellers manner that they can provide financing to companies negotiate and transact business directly without an or raise funds through bonds or Initial Public Offerings. intermediary. They are regulated by the Securities and Exchange ​ Public offering is the sale of new securities Commission (SEC). to the general public and the first offering of stock is called IPO or Initial Public Offering. MUTUAL FUNDS ​ Private placement is the sale of a new ​ are types of investments or funds of small investors security to a private or specific buyer. pooled together and managed to be able to generate maximum returns. SECONDARY MARKET ​ refers to financial market where previously issued INSURANCE COMPANIES securities (such as bond, notes and shares) are bought ​ sell life and non-life insurance products that offer and sold. security during times of death, illness, accident, and damage to property. MONEY MARKET PRIVATE EQUITY FUNDS ​ are venues wherein securities with short-term ​ are managed by private fund managers or investors, maturities (1 year or less) are borrowed or loaned. allowing owners to invest more aggressively in the financial markets. CAPITAL MARKET ​ are financial markets for stocks for a long-term period (one year or longer) WHAT IS A WORTHWHILE BUSINESS? DIFFERENT TYPES OF FINANCIAL INSTITUTION (BANK) ​ is a business that achieves the objective of financial soundness, sustainability, competitiveness, and nation-building. THRIFT BANKS WEEK 3 : FINANCIAL PLANNING PURPOSES ​ are deposit-taking financial institutions that extend credit to the consumer market that is in the countryside or rural areas. FINANCIAL PLANNING COMMERCIAL BANKS ​ is the process of deciding how an organization can ​ are mainly deposit-taking financial institutions that accomplish its financial goals and objectives. It is extend credit to the retail and consumer market, and divided into: their transactions are usually many but small, using the 1.​. the long-term financial plan, also known as strategic local currency. financial plan (2-10 years) 2.​ the short-term financial plan, also known as the UNIVERSAL BANKS operating financial plan. (1 year or less) ​ lend money to multinational companies. The transactions are larger than commercial banks and STEPS IN FINANCIAL PLANNING denominated in multi currencies not just to the local currency. They are like commercial banks but mostly 1.​ SET GOALS OR OBJECTIVES their clients are larger corporations. ​ Long-term goals set the company's direction. INVESTMENT BANKS ​ Short-term goals are the specific steps or ​ provide loans to big corporations and governments and can raise funds through bond issuances and initial actions that will ultimately achieve the public offerings. Investment banks also provide funds company's long-term goals. to businesses. 2.​ IDENTIFY RESOURCES NEEDED 3.​ IDENTIFY A GOAL THAT IS RELATED TO THE TASKS TYPES OF FINANCIAL INSTITUTION (NON-BANK) 4.​ ASSIGNING THE TASK TO AN ACCOUNTABLE AND RESPONSIBLE INDIVIDUAL OR TEAM AND HAVE A LEASING COMPANIES TIMELINE ​ extend financing to companies that need funds for 5.​ ESTABLISHING AN EVALUATION SYSTEM FOR their business. They are not banks and are not MONITORING AND CONTROLLING regulated by central bank. 6.​ DETERMINE CONTINGENCY PLAN ​ ​ Good luck bading! | Page 3 BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ FINANCIAL PLANNING ​ An excellent business proposition is to generate sales without offering a credit facility to customers. However, ​ is an alternative plan of an organization to respond this concept is theoretically sound, but not sustainable. efficiently to a future event or situation that may or may not happen. ​ Credit management strategically defines the quality of account receivables. WEEK 4 : TOOLS IN MANAGING WORKING CAPITAL, These are: RECEIVABLES AND INVENTORY 1.​ Character –the willingness of the borrower to repay the loan OPERATION CONVERSION CYCLE 2.​ Capacity – a customer’s ability to generate cash flows ​ The length of time in which the firm purchase 3.​ Collateral – security pledged for payment of the loan inventories, sell it and receive cash from sale 4.​ Capital – a customer’s financial resources 5.​ Condition – current economic or business condition INVENTORY MANAGEMENT ​ involves the formulation and administration of plans and policies to efficiently and satisfactorily meet production and merchandising requirements and minimize costs relative to inventories. In a manufacturing company, there are three types of inventory: CASH CONVERSION CYCLE - Raw materials – these are purchased materials not yet put into production. ​ The length of time between paying for working capital - Work in process – these are goods and labor put into and collecting cash from sale of inventory. production but not yet finished. ​ Cash conversion cycle is the basis for how much the - Finished goods – these are goods put into production and company should invest in working capital. finished. ABC ANALYSIS ​ One way to control inventory is to classify inventory into a classification system called ABC Analysis. EXAMPLE: ILLUSTRATION: JAN. 1 – Purchased inventories on account, P10,000 JAN. 4 – Sold inventories on account , P12,500 JAN. 6 – Paid the purchases on account. JAN. 10 – Collected cash from sales on account. WORKING MANAGEMENT CAPITAL Days Inventory – 3 days ​ Management of current assets and liabilities. Days Accounts Receivable – 6 days ​ To achieve a balance between profitability and risk that Days Account payable – 5 days contribute positively to the firm's value. CCC = 3 days + 6 days – 5 days = 4 days ​ Working Capital Management is all about RISK AND RETURN TRADE OFF. Generally, the higher the risk, the higher the return. Thus, the yield curve is upward sloping. FINANCING POLICY ​ For working capital management purposes, assets are classified as temporary and permanent assets. ACCOUNT RECEIVABLE MANAGEMENT ​ Permanent assets are current and fixed assets that remain unchanged over the year. ​ Accounts receivables spring out of the need to sell -Is the minimum level of current assets required by a merchandise. ​ ​ Good luck bading! | Page 4 BUSINESS FINANCE made by @ 2ND QUARTER | WEEK 1-6​ firm to carry-on its business operations given its term finances with less requirements. production capacity or relevant sales range. ​ Temporary assets or seasonal assets are current PAWNSHOP ​ are institutions that offer quick cash loans or “sanla”. assets that vary over the year. The process is too simple that a pawner offers a -is the excess of working capital over the permanent collateral in the form of jewelry to loan money. working capital given its production capacity or relevant sales range. LOAN REQUIREMENTS OF BANKS AGGRESSIVE POLICY ​ some of the permanent working capital requirements 1.​ Application form are financed by short-term sources of financing, the 2.​ Valid personal identification documents rest long term. 3.​ Financial statements 4.​ Bank statements MATURITY MATCHING POLICY 5.​ Certificate of business registration ​ permanent working capital requirements should be 6.​ Company profile financed by long-term sources while temporary 7.​ Collateral documents working capital requirements should be financed by short-term sources of financing. LOAN REQUIREMENTS OF NON-BANK CONSERVATIVE POLICY 1.​ Application form ​ even some of the temporary working capital 2.​ Valid personal identification documents requirements are financed by long-term sources of 3.​ Credit information/collateral file financing. 4.​ Credit investigation WEEK 6 : LOAN REQUIREMENT FOR BANK AND NON- BANK INSTITUITIONS BANKS ​ Banks are financial institutions that accept deposits from or offer loans to an individual or entity. NON- BANKS ​ accept deposits due to absence of banking license. INSURANCE COMPANIES ​ In the event of uncertain loss of the business, insurance may cover the loss for them. Government owned insurance providers are GSIS and SSS, and private insurance providers. CURRENCY EXCHANGE ​ Currency exchange is an industry of buying and selling currencies. MICROLOAN ORGANIZATION ​ are lending companies or organizations that usually offer small credits to individual or business. These organizations help small businesses to fund their short- ​ ​ Good luck bading! | Page 5