ABM Grade 12 Modules and activities! 2022-2023

Business Finance part3

Business Finance Reviewer Lesson 1

A. Investing
● Short term investments:
1. Plan for expected excess in cash using Financial Planning tools such as budgeting and forecasting.

2. Choose which type of investment should it invest in that would secure the best profits.

● Long term investments:
prepare a capital budgeting analysis to determine if the long-term investment will be profitable.

B. Operating - determine how to finance working capital accounts such as accounts receivables and inventories. (short term vs long term)

Dividend Policies - this determine when the company should declare cash dividends.

Financial Institutions intermediaries that channel the savings of individuals, businesses, and governments into loans or investments.

Private Placement the sale of a new security directly to an investor or group of investors.

Public Offering the sale of either bonds of stocks to the general public.

Financial Instruments is a real or a virtual document representing a legal agreement involving some sort of monetary value. These can be debt securities like corporate bonds or equity like shares of stock.

Financial Markets organized forums in which the suppliers and users of various types of funds can make transactions directly.

Controllable by Management:

● profitability
● having a good liquidity and reasonable leverage position
● dividends
● competent management which affects the company's operating efficiency
● coming up with corporate plans that improve the business prospects of the company

Uncontrollable External Factors:

● macroeconomic conditions
● political stability
● prospects of the industry where the company operates
● general market sentiment
● flow of foreign funds invested in the Philippine stock market

Factor influences market price:

Profitability:
● Profit is a measure of the financial performance of a company for a period of time.

● although it is a major driver for increasing the value of stock an investor should not rely on prophets alone it is possible that the company has prophets but its cash flow is negative.

Forms of business organizations:

Sole proprietorship a business owned by one person and operated for his or her own profit.

Partnership a business owned by two or more people and operated for profit.

Corporation an entity created by law owned by shareholders.

Finance can be defined as the science and art of managing money.

Budgeting is the act of estimating revenue in the form of their allowance and expenses over a period of time.

1. The primary goal of the financial manager is maximizing wealth.

2. Corporate owner's receive realizable return through increase in share price and cash dividends.

3. The wealth of the owners of a corporation is represented by share value.

4. Wealth maximization as the goal of the firm implies enhancing the wealth of the firm's stock holders.

5. The goal of profit maximization would result in priority for earning per share.

6. Profit maximization as a goal is not ideal because it does NOT directly consider risk and cash flow.

7. Profit maximization as the goal of the firm is not ideal because profit maximization does not consider risk.

8. Profit maximization fails because it ignores all EXCEPT earning per share.

9. The key variables in the owner wealth maximization process are cash flows and risk.

10. Cash flow and risk are the key determinants in share price. Increased cash flow results in a higher share price.

11. Cash flow and risk are the key determinants in share price. Increase risk, other things remaining a lower share price.

12. Financial managers evaluating decision alternatives or potential actions must consider risk, return, and the impact on share price.

1. A life insurance company is one financial intermediary handling individual savings. It receives premium payments that are placed in loans or investments to accumulate funds to cover future benefits.

2. The key participants in financial transactions are individuals businesses and governments individuals are net suppliers; users of funds.

3. which of the following is not a financial institution? a newspaper publisher

4. A pension fund is set up so that employees of corporations or governments can receive income after retirement.

5. a mutual fund is a type of financial intermediary that pools savings of individuals and makes them available to business. Funds are obtained through the sale of shares.

6. Most businesses raise money by selling their securities in a public offering.

7. Which off the following is not a service provided by financial institutions. buying the businesses of customers.

8. government usually is a net demander of funds.

9. by definition the money market involves the buying and selling of short term funds.

10. the money market is created by a financial relationship between suppliers and users of short-term funds.

11. firms that require funds from external sources can obtain them from all of the above.

12. the major securities traded in the capital markets are stocks and bonds.

13. Long-term debt instruments used by both government and business are known as bonds.

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