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Business Finance 2021-2022 Q 1 WEEK 1-2
BSEd Filipino
Cebu Roosevelt Memorial College
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SOUTHERN MASBATE ROOSEVELT COLLEGE, INC.
KATIPUNAN, PLACER, MASBATE
GRADE 12
BUSINESS FINANCE
QUARTER 1 WEEK 1 AND 2
Name:
I
I. INTRODUCTION.
Define Business finance
Business finance, the raising and managing of funds by business organizations. Much of the day-to-day work of business finance is conducted by lower-level staff; their work includes handling cash receipts and disbursements, borrowing from commercial banks on a regular and continuing basis, and formulating cash budgets. Financial management starts with a plan. This applies to both individuals and companies. It is not enough to have cash and other resources today. Such resources, if not managed properly, can be wiped out. Hence, financial management is a must. From the perspective of a corporation, financial management deals with decisions that are supposed to maximized the value of shareholder’s wealth. This means maximizing the market value of the shares of stocks. Shares of stocks represent the form of ownership in a corporation.
II. Shareholder’s Wealth Maximization
Maximizing shareholder’s wealth through maximization of stock price should be the overriding (more important than any other considerations) objective of management as it covers the different facets of operating a company and it considers the different stakeholders in the organization. Stakeholders are not limited to the stockholders of the company. Stakeholders also include management, employees, suppliers, customers, creditors, regulatory agencies, and the community where the company operates. For longer and more sustainable operations, the interest of these different stakeholders has to be borne (bear) in mind. Note: The Stockholders have to be happy with their investments in the company so that they will be encouraged to invest more. More investments mean more jobs can be created.
III. Financial System
CHAPTER 1 INTRODUCTION TO FINANCIAL MANAGEMENT
Self-Test Questions
- What should be the most important goal of the company? Why?
- Why is profit maximization supposedly not the most important goal of a company?
The financial system links the savers and the users of funds. Please see diagram below.
Savings can come from households, individuals, companies, government agencies, or any other entity whose cash inflows are greater than their cash outflows. The financial system through financial intermediaries provides a mechanism by which these savings can be channeled to users of funds, borrowers, and investors.
The next section will discuss the different functions that each financial intermediary may perform.
Banks Banks provide mechanism where savers can put their excess funds through deposits. Banks give the depositors interest on the money deposited on them. To cover for the interest given to depositors, banks lend money to borrowers after performing a credit investigation. Some of the deposits can also be invested in some financial instruments like government securities and corporate bonds. Banks can also serve as conduits of investors in buying and selling both government securities and corporate bonds.
Insurance Companies Insurance companies offer different products. Insurance products can be broadly categorized into life insurance and non-life insurance products. Life insurance products protect the insured from loss of life while non-life insurance products protect the insured form the loss of or damage to properties. In exchange for the protection, the insured pays premiums to the insurance companies. These premiums are used to fund claims. Generally, the cash collected from the premiums may cover more than claims for most periods. Hence, the excess cash can be invested by insurance companies. There are guidelines in investing that insurance companies have to follow to ensure that they have enough cash when claims are made. Insurance companies are regulated by the INSURANCE COMMISSION.
Stock Exchange The Philippine Stock Exchange (PSE) provides a system for the trading of equity securities of publicly listed companies. These equity securities are common stocks and preferred stocks.
Stock Brokerage Firms Investing in the stock market has to be cured through stock brokerage firm. At present, there are online brokers and live brokers. With online brokers, one can trade in the stock market through the internet. With live broker, one needs a telephone to call brokers and place orders. Settlement of the transaction can be arranged with the broker. Live brokers normally have their messengers who deliver confirmation receipts as well as collect and deliver checks. Confirmation receipts are forms of evidence regarding the executed buy or sell transaction that a client placed with his order.
Mutual Funds Mutual funds provide opportunities for big and small investors in financial instruments which they would not have considered on their own, or they may have considered but do not have the time or the expertise to do it. These include investments in the stock market, bonds, treasury notes, and other money market instruments like Treasury Bills.
Other Financial Institutions Other financial institutions include pension funds like Government Service Insurance System (GSIS) and Social Security System (SSS), investment banks, and credit unions, among others.
Users of Funds
(Borrowers/Investors
- Households
- Individuals
- Corporations/Compa nies
- Government
Financial Intermediaries
- Banks
- Insurance Companies
- Stock exchange
- Stock brokerage firms
- Mutual Funds
- Other Financial Institutions
SAVERS
- Household
- Individuals
- Corporation/Compa nies
- Government Agencies
Shareholders: 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 out the objectives of the shareholders otherwise; they would not have been elected in that position. Board of Directors: The board of directors is the highest policy making body in a corporation. The board’s primary responsibility is to ensure that the corporation is operating to serve the best interest of the stockholders.
- Setting policies on investments, capital structure and dividend policies.
- Approving company’s strategies, goals and budgets.
- Appointing and removing members of the top management including the president.
- Determining top management’s compensation.
- Approving the information and other disclosures reported in the financial statements (Cayanan 2015)
THE RESPONSIBILITIES OF A BOARD OF DIRECTORS
- Overseeing the operations of a company and ensuring that the strategies as approved by the board are implemented as planned.
- Performing all areas of management: planning, organizing, staffing, directing and controlling.
- Representing the company in professional, social, and civic activities.
- Carries out the decision making for all functions VP for Marketing: (Cayanan, A. 2015)
THE RESPONSIBILITIES OF A PRESIDENT OR CHIEF EXECUTIVE OFFICER (CEO)
- Formulating marketing strategies and plans.
- Directing and coordinating company sales.
- Performing market and competitor analysis.
- Analyzing and evaluating the effectiveness and cost of marketing methods applied.
- Conducting or directing research that will allow the company identify new marketing opportunities, e., variants of the existing products/services already offered in the market.
- Promoting good relationships with customers and distributors. (Cayanan, A. 2015)
The following are among the responsibilities of VP for Marketing
- Ensuring production meets customer demands.
- Identifying production technology/process that minimizes production cost and make the company cost competitive.
- Coming up with a production plan that maximizes the utilization of the company’s production facilities.
- Identifying adequate and cheap raw material suppliers. (Cayanan, A. 2015)
VP for Production: The following are among the responsibilities of VP for Production:
- Coordinating the functions of administration, finance, and marketing departments.
- Assisting other departments in hiring employees.
- Providing assistance in payroll preparation, payment of vendors, and collection of receivables.
- Determining the location and the maximum amount of office space needed by the company.
- Identifying means, processes, or systems that will minimize the operating costs of the company. (Cayanan, A. 2015)
VP for Administration: The following are among the responsibilities of VP for Administration
VI. Functions of a Financial Manager
> The four functions of a VP for finance (CFO) are as follows: - Financing - Investing - Operating - Dividend Policies
Recall from the previous lesson that there are situations when we are faced with lack of funds. Financing decisions include making decisions on how to fund long term investments (such as company expansions) and working capital which deals with the day-to-day operations of the company (i., purchase of inventory, payment of operating expenses, etc.)
Recall that Assets = Liabilities + Owner’s Equity. 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.
On the other hand, if we used money from our borrowings, the asset bought is financed by debt. In the figure above, the total assets are financed by 60% debt and 40% equity.
Accordingly, the capital structure is 60% debt and 40% equity. Try to analyze. Are there ideal mixture of debt and equity across corporations? Try to express inner understanding as a manager. Explain your answer.
The answer is None.
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.
The role of the VP for Finance of the Financial Manager is to determine the appropriate capital structure of the company. Capital structure refers to how much of your total assets is financed by debt and how much is financed by equity. To illustrate, show/draw the figure below:
The role of the VP for Finance of the Financial Manager:
equity. The management usually appropriates a portion of retained earnings for investment undertakings and this may limit the amount of retained earnings available for dividend declaration. Examples of these companies are companies such as PLDT, Globe Telecom, and Petron. (Information as of 2014).
A Financial Manager is part of a management team whose ultimate goal is to maximize shareholders wealth.
The president cannot manage the company on his own, especially when the corporation has become too big. To assist him are the vice presidents of different functional areas: finance, marketing, production and administration.
Financing decisions include making decisions on how to fund long term investments (such as company expansions) and working capital which deals with the day-to-day operations of the company (i., purchase of inventory, payment of operating expenses).
Before a company may be able to declare cash dividends, two conditions must exist: 1. The company must have enough retained earnings (accumulated profits) to support cash dividend declaration. 2. The company must have cash.
One of the functions of a finance manager is investing and its available cash may be used to invest in long term investments that would increase the profitability of the company.
ACITIVITY 1
Directions: Discuss briefly the roles of each position identified. Write your answer on the space provided for each item.
REMEMBER
Let us start your journey in learning more on the identifying the roles in a Corporate Organization. I am sure you are ready and excited to answer the Posttest. POSTTEST
SHAREHOLDERS
BOARD OF DIRECTORS
PRESIDENT
VP FOR MARKETING
VP FOR PRODCUTION
VP FOR ADMINISTRRATION
VP FOR FINANCE
- The _______________________ is the highest policy making body in a corporation.
- The ______________________analyze and evaluate the effectiveness and cost of marketing methods applied.
- The ________________________ elect the Board of Directors (BOD).
- The ______________________oversee the operations of a company and ensure that the strategies as approved by the board are implemented as planned.
- The _____________________provide assistance in payroll preparation, payment of vendors, and collection of receivables.
__________ 1. Capital structure refers to how much of your total assets is financed by debt and how much is financed by equity. ___________2. Short term investment decisions are needed when the company is in an excess cash position. ___________3. The mix of debt and equity varies in different corporations depending on management’s strategies. ___________4. Managers’ credit are the amounts owed to suppliers for the inventories they delivered or services they provided. ___________5. It is not the role of a financial manager to determine when the company should declare cash dividends.
- Give at least three important reasons why the board of directors is the highest policy-making body in a corporation.
- How is the Director elected in the board of directors?
- Identity the four important roles of a finance manager and explain each function briefly.
- Discuss why dividend policy is a very important role of a financial Manager.
Note: For questions and queries, below are my contact information. And kindly put your Fb Account and mobile #. Thank you!
TEACHER: EDMARK P. CATAGBO
Mobile #: 09676508554
Fb account: Edmark Catagbo
Fb account:
Mobile #:
I. Fill in the blanks. Direction: Identify the following. Write your answer in the blank space provided below.
II. TRUE or FALSE Direction: Direction: Before each statement, write TRUE if the statement is correct or FALSE if the statement is incorrect.
III. CHECK YOUR UNDERSTANDING
Business Finance 2021-2022 Q 1 WEEK 1-2
Course: BSEd Filipino
University: Cebu Roosevelt Memorial College
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