BUS FIN.pdf

Business Finance | Quarter Exam Comprehensive Reviewer Terminology Collateral – something pledged as security for repayment of a loan to be forfeited in the event of default. Financial management - is “the science and art of managing money” (Gitman and Zutter 2012). Persona...

Business Finance | Quarter Exam Comprehensive Reviewer Terminology Collateral – something pledged as security for repayment of a loan to be forfeited in the event of default. Financial management - is “the science and art of managing money” (Gitman and Zutter 2012). Personal finance - deals with saving, investing, and spending money depending on personal goals and desires. Policy – a set of guidelines or rules that determine a course of action. Public finance – used to provide services to the public. Profit – it is the financial benefit of a business when the revenue produced exceeds the expenses. Return – it is the change in value of an asset, investment, or project over time. It can be positive return (gain) or negative return (loss). Risk – refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. Shareholder – also referred to as stockholder. It refers to a person, company, or institution that owns at least one share of a company’s stock. Financial Management Bulls symbolize optimism/growth. Bears symbolize falling prices. Banks are the most common financial institutions. They accept deposits and offer loans. They generate income through interest from their products and services. Brokerage firms offer investment in stocks. The main participants in a financial system are lenders and borrowers. Direct Financing is also referred to as “market-based financing”. The Flow of Funds is a macroeconomic concept that is used to track and analyze the movement of money among individual and industries. The Financial System The Bangko Sentral ng Pilipinas (BSP) or the Philippine Central Bank is an independent government-owned corporation with the primary responsibility of supervising and regulating finance companies bank operations, non-bank financial institutions performing quasi-banking functions, and other institutions performing similar functions. Banknotes in the Philippines are issued by BSP. The International Monetary Fund (IMF) oversees the global financial system. It works to achieve sustainable growth and prosperity for all its 190 member countries. 2 Categories of Financial Institutions Depository Institutions – accepts deposits from businesses and individuals and provide traditional banking services. Non-depository Institutions – do not accept deposits but offer other financial services such as insurance, mutual funds, pension funds, and brokerage firms. Profit Maximization vs Wealth Maximization 1. Profit Maximization – its main objective is short-term profitability and immediate gains. 2. Wealth Maximization – it is the idea of increasing the business's value to increase the value of shares held by its stockholders. Financial Manager A financial manager ensures that the maximization of wealth of an individual or entity is achieved. A financial manager is responsible for monitoring and sustaining financial health of an individual, business, and/or government. The roles of a Financial Manager are Financing Decisions, Investing Decisions, Operation Decisions, and Dividend Policies. PREPARED BY: AXL RENZ A. ALFONSO PRIVACY & CONFIDENTIALITY. This material is intended only for Bragion and Glowicki for A.Y. 2024-2025. Any unauthorized reproduction of the material without written consent may be subject to copyright infringement. Corporate Organizational Structure Corporate Organizational Structure is the organizational structure of a corporation and the way they are structured or organized. 1. Board of Directors (BOD) - The BOD represents the shareholders in overseeing the business. 2. The President and Chief Executive Officer (CEO) - the CEO focuses on growing the company's value and maximizing its wealth, while the president works to ensure business operations and other short-term goals such as profit maximization. 3. Vice-President for Sales and Marketing - department is generally responsible for growing the revenue and client portfolio of the company. 4. Vice-President for Production - is responsible for the creation of goods and services. 5. Vice-President for Administration - this office conducts much of the human resources and general management activities. 6. Vice-President for Finance or Chief Financial Officer (CFO) - supervises all phases of financial activity and is responsible for planning and managing the company’s financial resources. Under the CFO, the top-level financial managers in many companies are treasurer and controller. 7. Treasurer – handles external financing matters and has responsibility for the management of a company’s cash, investments, and other financial resources as well as relationships with investors and creditors. 8. Controller - is concerned with internal matters such as overseeing accounting and the financial records of the organization and provides support for executives and other managers in understanding and using financial data and reports. Preparing Financial Statements ✓ Financial Statements indicate the company’s revenue, cash inflows, outflows, and liabilities. ✓ The Auditor checks the company’s financial statements. ✓ Balance Sheet provides information on current assets, liabilities, and equity of a company at a specific period of time. ✓ Income Statement – also known as profit and loss statement. It shows the company's performance within a specific time. ✓ Statement of Cash Flow – summarizes the inflows and outflows of the company’s cash. Data from a Balance Sheet 1. Current Assets - are company resources that can be liquidated in a year. (e.g. cash, accounts receivable, and inventory) 2. Non-current Assets - are company resources that may not be converted into cash within a year. (e.g. long-term investments, PPE, and intangible assets) 3. Current Liabilities – are financial debts of the company that must be paid within a year. (e.g. accounts payable, short-term loans, income taxes payable, accrued salaries and wages) 4. Long-term Liabilities - are financial debts of the company that can be settled beyond a year. (e.g. five-year loans and deferred income tax) 5. Shareholder’s/Owner’s Equity – shows the total amount of investment of shareholders/owners in the company. Data from an Income Statement 1. Revenue is the income of the company from the sale of goods and services. 2. Expenses are the operating and non-operating costs that the company incurs to generate revenue and stay afloat. 3. Net Income shows the total gain or loss of the company in a specific period. Data from Statement of Cash Flows 1. Operating Activities – are cash flows from business operations involved in producing and selling products and services. 3. Financing Activities – involve changes in liabilities and equity of the business. 4. Investing Activities - refers to acquiring long-term investment such as capital expenditures and proceeds from the sales of equipment or real estate. PREPARED BY: AXL RENZ A. ALFONSO PRIVACY & CONFIDENTIALITY. This material is intended only for Bragion and Glowicki for A.Y. 2024-2025. Any unauthorized reproduction of the material without written consent may be subject to copyright infringement. Financial Ratios 1. What is the total current assets? 2. From the result in no. 1, subtract the amount of inventory. 3. Determine the sum of the cash and the cash equivalents (marketable securities). 4. What is the total current liabilities? 5. Compute for the current ratio. 6. Compute for the quick ratio 7. Compute for the cash ratio. Solutions: 1. 300,000 (cash) + 120,000 (marketable securities) + 15,000 (inventory) + 13,000 (cash receivables) + 12,000 (bills receivables) = 460,000 2. 460,000 (total current assets) - 15,000 (inventory) = 445,000 3. 300,000 (cash) + 120,000 (marketable securities) = 420,000 4. 50,000 (accounts payable) + 150,000 (short-term loans) = 200,000 5. Current Ratio = total current assets = 460,000 = 2.3 total current liabilities 200,000 6. Quick Ratio = total current assets-inventory = 445,000 = 2.225 total current liabilities 200,000 7. Cash Ratio = cash + marketable securities = 420,000 = 2.1 total current liabilities 200,000 NOTE: These 7 questions will be the same questions in the quarter exam. Same questions, but different set of numerical data. Make sure to familiarize yourself with the formula. PREPARED BY: AXL RENZ A. ALFONSO PRIVACY & CONFIDENTIALITY. This material is intended only for Bragion and Glowicki for A.Y. 2024-2025. Any unauthorized reproduction of the material without written consent may be subject to copyright infringement.