Business Finance - INTRODUCTION-TO-FINANCIAL-MANAGEMENT
Business Finance - INTRODUCTION-TO-FINANCIAL-MANAGEMENT
Business Finance - INTRODUCTION-TO-FINANCIAL-MANAGEMENT
BUDGETING Is the act of estimating revenue and expenses over period of time.
Finance is concerned with decisions about:
o How much money of their earnings they spend
o How much they save of how much they need
o How they invest their savings
o How they raise additional funds they need
FINANCIAL The efficient and effective management of funds
MANAGEMEN The goal of financial management is to maximize profit
T Managers of a corporation- are responsible for making the decisions for the
company that would lead towards shareholders’ wealth maximization.
Chief Financial Officer (CFO)
SHAREHOLDERS
PRESIDENT (CEO )
FINANCIAL INSTITUTIONS
FINANCIAL INSTRUMENTS
FINANCIAL Is a real or a virtue document representing a legal agreement involving some sort-
INSTRUMENTS of monetary value
These can be debt securities like corporate bonds or equity like shares of stock.
Help finance manager handle his cash, short term and long term operating
requirements
TYPES OF
FINANCIAL
INSTRUMENTS
DEBT Generally have fixed returns due to fixed interest rates.
INSTRUMENTS
CORPORATE Are issued by corporations
BONDS Matures in forty years (some 100 yrs- walt Disney,
coca cola)
Usually have higher interest rates but more risky
TREASURY Are issued by the Philippine government
BONDS AND Have usually low interest rates and have very low
TREASURY risk of default as government will exert all effort to
BILLS pay
Matures within one year
EQUITY Generally have varied returns based on the performance of the issuing company.
INSTRUMENTS
PREFERRED Issued by corporations in exchange of units of
STOCK ownership
Has no maturity date, pays dividend when declared
Has no voting rights
Priority over a common stock in terms of claims
over the assets of the company
More risky than corporate bonds
COMMON Units of ownership in a public corporation
STOCK Pays dividends when declared
Has voting rights, are the real owners of the
company
Less priority in corporate liquidation
Enjoy potential profits from capital stock
appreciation
FINANCIAL MARKETS
PRIMARY MARKET Where the users of funds will go to issue new securities
Public offering – the sale of new securities to the general public
Initial public offering – the first offering of stock
Private placement- sale of new securities to one investor or group of investors
SECONDARY Where the sale of previously owned securities takes place
MARKET Philippine Stock Exchange (PSE) is both a primary and secondary market
MONEY MARKETS A venue wherein securities with short-term maturities (1 year or less) are sold
CAPITAL MARKET Where securities with longer-term maturities are sold
Securities are bonds (long-term debt) and both common stock and preferred stock
(equity or ownership)
FINANCIAL MARKETS
If facts are unknown to them, A and B can go to a
Financial Market that lets A along with other suppliers
of funds, and B, along with other users of funds, meet
and make transactions. Once A and B met in the
Financial Market, they can now agree to make a
private placement.
FINANCIAL INSTITUTIONS
If A and B do not want to make an effort to find a counterpart in the Financial Markets, A and B may go
to Financial Institutions. A Financial Institutions will receive A’s supply of funds and match it with B’s
demand of funds.