Business Finance

First summative

Finance decisions

• most of the activities you do involving decisions on where to use your allowance

Finance

• science and art of managing money

Budgeting

• estimating revenue and expenses over a period of time

Investments

• come in many forms that will generate income in the future

• Cash in banks = earns interest

Wealth maximization

• overall objective of the shareholders

Financial intermediaries

• banks

• insurance

• stock exchange

• mutual funds

Banks

• provide mechanism where savers can deposit, which will earn interests as incentives

• Banks earn interest by lending money after performing credit investigation

• Some deposits can also be invested in government securities etc. 

• Also serve as conduits of investors in buying and selling government securities (middleman)

Insurance

• in exchange for protection, the insured pays premium 

• Life insurance and non life insurance (cars, house)

• Excess cash can be invested by insurance companies

Stock exchange

• system for trading equity securities of publicly listed companies

• Philippine stock exchange is an example

• Individuals cannot go directly to PSE; they should open an account with an accredited stock brokerage firm

• Common stocks: voting rights; dividends not guaranteed, but higher earning potential

• Preferred stocks: no voting rights; dividends are fixed and paid before common stockholders; lower risk but less potential for price growth

• Better to put money in stocks rather than banks

Online brokers

• One must have an account and deposit with online broker

• Can trade the stock market through internet

Live brokers

• One needs a telephone to call brokers

• Settlement of transaction can be aranged with the broker

• Normally deliver confirmation slips through messengers

Mutual funds

• provide opportunities for big and small investors to invest

• Investments are pooled and invested by professionals for a fee

• Limited only to stocks (risk takers)

• Restricted to fixed income instruments (conservative)

• Others provide a combination of both stocks and income instruments (both)

• Low risk and investments are manageable

More prominent financial institutions in the ph

• GSIS

• SSS

• UITF

SSS

can voluntary invest even if member of GSIS

Board of directors

1. Setting policies on investments etc.

2. Approving company’s strategies

3. Appointing and removing members of the top management including the president

4. Determining top management’s compensation

5. Approving the information reported in the financial statements

President

1. Overseeing the operations of a company

2. Performing all areas of management

3. Representing the company

Vp for sales and marketing

1. Formulating marketing strategies

2. Directing and coordinating company sales

3. Performing market and competitor analysis

4. Analyzing and evaluating effectiveness and cost of marketing methods

5. Conducting or directing research to identify new marketing opportunities

6. Promoting good relationships with customers

vp for production

should be coordinated with with marketing department

1. Ensuring production meets customer’s demands

2. Identifying production technology that minimizes cost

3. Coming up with a production plan 

4. Identifying adequate and competitively priced raw material suppliers

Vp for administration

1. Coordinating the functions of all departments

2. Assisting other departments in hiring employees

3. Assistance in payroll preparation

4. Determining the location and maximum amount of office space needed

5. Identifying means, processes, or systems that will minimize the operating cost

Vp for finance

1. Financing, investing, operating, and dividend policies

2. Helping determine how many cash dividends a company should declare

3. Making decisions to finance long-term investments

4. Determine the appropriate capital structure

5. Capital budgeting analysis in support of long term investment 

6. How to finance working capital accounts (money for day to day operations)

Dividend policies

• can be non-cash

• Availability of investment opportunities

• Access to a long-term source of funds

• Capital structure: ex: L (500k) + E (500k) = A (1M) or L (800k) + E (200k) = A (1M)

• Stockholders: electing board of directors; power is based on the number of shares

Capital Structure

• Liabilities + equities = assets (equity financing pays dividends)

• Debt financing pays interest