Business Finance 2nd Quarter Reviewer PDF

BUSINESS FINANCE 2ND QUARTER REVIEWER WHAT IS INVESTMENT? - Investments are assets that allow money to grow. - Investments are made with an intention to benefit from the appreciation of value over time. - Is to allocate money in the expectation of some benefit in the future. INVESTING...

BUSINESS FINANCE 2ND QUARTER REVIEWER WHAT IS INVESTMENT? - Investments are assets that allow money to grow. - Investments are made with an intention to benefit from the appreciation of value over time. - Is to allocate money in the expectation of some benefit in the future. INVESTING - Refers to acquiring an asset today to benefit from it in the future. - is a process of letting the money work instead of working hard for the money. INVESTORS - Invest money with an intent to generate money either through capital appreciation over time or through regular income from the investment. ADVANTAGE - People move from job-to-job, or from career-to-career, and due to this, retirement falls ending up getting nothing at the end. It will only be through investing earned money from employment that makes available needed funds after retirement DISADVANTAGE - The major disadvantage of investing is the possibility of losing money on whatever investment opportunities. FIXED INCOME AND EQUITIES A.STOCKS (EQUITY) - Investment in share of stock is like buying a small part of the company. If that company makes money, it will be distributed to each share through dividends. ADVANTAGE - Owning stocks has been the best way historically to build wealth. Aside from the share in profits in the form of dividends, there is possibility of a capital gain when increases in the stock prices in the market. DISADVANTAGE - Dividend or share in profit will be dependent on the board of directors' declaration which means that corporation cannot be obliged to give dividends every year. Incase of liquidation, owners of share of stock are not a priority but it is the outside creditors who will be given first the right over the remaining assets of company. B. BANK DEPOSITS (FIXED INCOME) - Investing money in a bank is an investment option, either in SAVINGS ACCOUNT where it will accrue a small amount of interest or in CERTIFICATE OF TIME DEPOSITS with higher interest rates but contain some serious crestrictions on its withdrawal SAVINGS ACCOUNT - The money saved in a bank earns minimal interest which makes it not the best option for long term growth. - It can easily be withdrawn in case of need or for other productive purposes. It is also least risky as ordinarily, savings deposits are insured with Philippine Deposit Insurance Corporation (PDIC) for maximum amount of 500,000 pesos TIME DEPOSIT - Funds can be placed in time deposits instead of savings account to earn a higher rate of interest. - For a fixed term, i.e. 30 days, 90days, should not be withdrawn within the fixed period to be entitled to a higher interest, otherwise, it will revert back to the savings interest rate. ADVANTAGE Security - The money invested in any bank is safe whether in a savings account, time deposit or money market account. Bank deposits are insured and guaranteed by Philippine Deposit Insurance Corporation for a maximum amount of 500,000 pesos. - Bank investments are safe investment compared to the investment in stock market considering the volatility of the stock market due to the impact of economic trends. DISADVANTAGE Returns - Some banks have no interest for checking. Savings accounts earns a very small amount, usually amounting to 1% or less. Except that money market accounts and time deposits earn more typical rates 2% to 3%. Liquidity - for time deposits and money market accounts, it will be disadvantage due to the limits on the withdrawal on the money. BONDS (FIXED INCOME) - The level of risk involved when investing in bonds depends on the issuer of bonds. Unlike time deposits, bonds can be sold without waiting for its maturity. ADVANTAGE - Investing in bonds has been considered one of the safest ways to make money considering the fixed interest. Investing in a bonds means lending money to a company for expansion of the business. This growth of businesses will bring a chain reaction to the economy. DISADVANTAGE - Investing in a bond is always with a fixed term ordinarily more than a year. It money is needed in a short run, it will be sold for a lower amount, meaning receiving an amount lower than the original investment. DISADVANTAGE OF COMMODITIES COMMODITIES - A basic good used in commerce that is interchangeable with other commodities of the same type (gold, nickel, oil) DISADVANTAGES - Impractical to invest directly considering storage, transportation, and insurance cost involved. ADVANTAGE OF MUTUAL FUNDS MUTUAL FUNDS - An investment that is made up of a pool of funds collected from many investor for the purpose of investing in stocks, bonds, and similar assets. ADVANTAGE - Diversification, Easy for novices to get involved, convenience, fund management, investment amount. INVESTMENT IN REAL ESTATE - is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. INSURANCE - A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.  ADVANTAGES OF UITF UNIT INVESTMENT TRUST FUNDS (UITF) - Unit Investment trust funds (UITF) similar to mutual funds but it is managed by the bank. ADVANTAGE - easier access because clients can open an account in any branch of the bank near them. No entry and management fees. EXCHANGE RATE RISK - exists if the investment is denominated in another currency different from that of the local currency of the investor. - An additional uncertainty exists if the investor needs to liquidate the foreign currency-denominated investment and convert it to Philippine peso, for example. FINANCIAL RISK - refers to the risk created by the choice of capital structure the financing mix of the issuing company. A company usually funds its operation through debt and equity financing. As the debt portion increases, financial risk increases. - Examples of factors that can impact financial reporting risk include materiality, volume of transactions, operating environment, the level of judgement involved, reliance on third party data, manual intervention, disparity of data sources, evidence of fraud, system changes and results of previous audits by internal. MONEY MANAGEMENT CYCLE - a cycle that is from earning to spending, or saving or investing. In other words, it is a flow of earning money to spending money, or putting it into savings or investing it. TERMS TO REMEMBER: SPENDING - paying out (money) in buying or hiring goods or services. INVESTING - is allocating money in the expectation of some benefits in the future. In finance, the benefit from an investment is called a return SAVING - is income not spent, or deferred consumption.Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. EARNING - is the amount of money that someone is paid for working. It is the amount of profit that a business produces during a specific period. CYCLE 1-EARN/SPEND/EARN/SPEND - This cycle is for individuals who are living and dependent only from the amount to be received every pay day. After receiving the amount of salary every pay day. it will be spent, and if not enough, earn some more and spend it again. - There is no way to get out of the cycle as they don't understand and implement the basics of money management. - Money is the most important thing to have and is said to be the root of all evils. To some people money means security whiles to others, money is power or self- sufficiency. CYCLE 2: EARN/SPEND/BORROW/SPEND - This cycle is for individuals who have intricacy of living beyond their means due to difficulty of denying themselves with anything. These individuals are easily confused with 'wants" and "needs" because they are convinced they deserved whatever they want and feel and so they deserved it now. - Basically, they earn money, spend all of that, then borrow more money and spend that. As a result, they rely on credit to establish and maintain the standard of living they feel they are entitled to or deserved.  SOUND PRACTICES EARNING MONEY - Money will not fall out from the sky like rain when needed. Money is earned which is also called an income when employed in a certain job. INCOME basically means receiving money for doing a paid work during the day, week or month. EARNING MONEY: 1.WAGES - payment by wages involve a fixed hourly rate of pay for a standard set number of hours The excess hours worked beyond this set number of hours is considered overtime and paid additional premium of 25% of the daily rate. Wages are also often paid for factory 2.PIECE WORK - Payment of work for this type is based for each item produced or processed, rather than for the number of hours worked. Types of jobs paid by "piece of work" are in manufacutring (dress maker, furniture maker) 3. SALARY - payment of work for this type involve, weekly, semi-monthly, monthly or per annuun - Workers who are often required to work overtime, are paid overtime pay except those in flexible terms which are mostly not paid. Instead the time can be offset againts their tardiness or absences which are most accorded to supervisory employees. - Ordinarily, payment of salary is often to regular or monthly 4.COMMISSION - payment of work is paid a small "Retainer" or "Flat Fee" plus either a percentage of the amount of the sales generated. - Jobs which are being paid by commissions are usually sales jobs such as Real Estate, Sales Reps, Book Seller SAVING - is a voluntary act and it doesn't happen by accident, it involves active works toward it. It is not easy to meet savings goals and it requires a lot of determination. EXAMPLES OF SAVING: 1.Arrange for an Automatic Savings - With the technology nowadays, an automatic arrangement with the employer's bank for savings deposit at a fixed amount each payday. Any amount will add up faster without noticing it. 2.Separate Savings Account - A separate savings account with a different from the primary checking account will help in avoiding buying unnecessary things. This will limit access or knowing how much money is in the savings account that keeps away to impulsive buying 3.Create Separate Bank Accounts - An excellent examples include setting aside a "Vacation Savings Account" or a "New Car" savings account. If there is a different savings account associated with a particular financial goal, it becomes easier to measures its progress and stay motivated 4.Save Your Loose Change - Keeping loose change in an empty jar or used coffee can is a good start of saviing money, though it seemed outdated. However this action will provide an excellent way to have emergency funds on hand. In addition, when the gets full, the amount can be deposited in a savings account SPENDING - is to pay out, disburse or expend, dispose of money, wealth and resources. Some anxiety about spending money comes simply from not being sure of what's coming in and what's going out. In most cases, spending money can be difficult to stop, but with the right approach it's possible that money to SPENDING MONEY: 1.PAY IN CASH - Debit or Credit card should not be used for daily expenses. Taking out cash each payday can be considered an allowance which can be used for cash expenses. This method will lead to an excellent way of living within available means. 2.TRACKING OF EXPENSES - Tracking expenses by keeping every receipt will give information about where the money goes every month. It will be surprising to know that there are some expenses which are too much and unwanted. Knowledge about this will lead to an improvement of spending habit and savings at the end. 3.AVOID IMPULSE PURCHASES - Supermarkets provide big carts instead of basket only to encourage shoppers to fill in with goodies which may not be necessary or excessive. This is one of the strategies of stores to motivate shoppers to buy more. Another way of luring shoppers to impulsive purchases is the arrangement of items for sale. Ordinarily, the necessities or staple purchases like milk and eggs, are in the back of the store. Each shopper will have to pass the inner aisles that contain items which are new and/or promotional items 4.PAYMENT OF CREDIT BILLS ON TIME - Possession of a credit card is a privilege, not a right. This is supposedly granted to those who demonstrate responsible spending and saving practices. Non-payment of credit bill on time, will add more costs through fees or charges which can easily be saved for productive purposes INVESTING - Deploying capital toward projects or activities that are expected to generate a positive financial return over time. INVESMENT - An asset or item acquired with the goal of generating income or appreciation over time. SOME WAYS TO START INVESTING MONEY: 1 Speak to someone knowledgeable about money investment. - There are lots of investment opportunities which can only be known by asking the expert or the experienced investors. There is a need to understand the pros and cons of any investment before venturing into it 2.Familiarity of the investment opportunities will lead to a fruitful undertaking.  - Investing money to shares of stock of a well-known company is better than shares of stocks company which is never heard. 3. Diversification of Investment. - It is not good to put all the eggs in one basket as it will lead to a bankruptcy incase of any eventualities. Managing investment portfolio will be givien more security and better result than keeping money in a bank. But it is also worth mentioning to consider risk or return trade off in making investment HUWAG TIGNAN, BASAHIN DIN, WALANG COMPUTATION, I-TRY MO SA SARILI MO PARA MAY MASAGOT KA IN LUCA LUCA PACIOLI WE TRUST!!!!