Business Finance Module 1-Pages
Business Finance Module 1-Pages
Business Finance Module 1-Pages
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BUSINESS FINANCE
Module 1 - Quarter 1
Introduction to Financial
Management
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OVERVIEW
This module created to train learners to familiarize with Business Finance
with the fundamental principles, tools, and techniques of the financial operation
involved in the management of business enterprises. In answering the pre-test,
self-check exercises and post-tests, remind students to use separate sheets.
Business Finance is a specialized subject of Accounting, Business and
Management strand, which introduces the basic concepts of corporate finance and
personal finance. The lessons have been designed to give learners the opportunity
to explore the content and performance standards set for Business Finance. It will
prepare learners in applying such learnings in real life situation.
GENERAL INSTRUCTIONS
For the learners: For the teacher:
To be guided in achieving the To facilitate and ensure the students’
objectives of this module, do the learning from this module, you are
following: encouraged to do the following:
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Lesson
What I Know
Let us determine how much you already know about the definition of finance, the
activities of the financial manager, and financial institutions and markets. Take
this test.
Direction: Read each question carefully, choose the letter with the correct answer
and write your answer on the space before each number.
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_____4. It is a type of financial intermediary that pools savings of individuals and
makes them available to business and government users. Funds obtained through
the sale of shares.
A. Mutual Funds C. Savings and loans
B. Commercial banks D. Credit Union
_____5. Most businesses raise money by selling their securities in a.
A. direct placement C. public offering
B. stock exchange D. private placement
_____ 6. Which of the following is not a service provided by financial institutions.
A. Buying the businesses of customers
B. Investing customers’ savings in stocks and bonds
C. Paying savers’ interest on deposit
D. Lending money to customers
_____7. By definition, the money market involves the buying and selling of.
A. funds that mature in more than one year.
B. flows of funds.
C. stocks and bonds.
D. short-term funds.
_____8. It creates financial relationship between suppliers and users of short-term
funds.
A. financial market C. stock market
B. money market D. capital market
_____9. Firms that require funds from external sources can obtain them from
A. financial markets. C. financial institutions.
B. private placement. D. All the above.
_____10. The science and art of managing money.
A. Financial Management C. Management
B. Finance D. Personal Finance
What’s In
As a senior high student taking this subject and read this module, you will
learn to become financial literate in all aspect in life. If you are thinking that only
working individuals, entrepreneurs, businesses make financial decisions, then you
will be benefiting more from this subject than the rest. Perhaps, your first lesson is
to know that you do make financial decisions on a daily basis. Finance is every day;
I want to challenge you to get your notebook and answer these questions and give
your honest answer. How much is your monthly allowance or everyday allowance?
List all your expenses when you come in school. How much is your expense? How
much is your extra money? On the other hand, do you experience short of cash? In
addition, why? All of these questions will teach you how to manage your finances.
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What’s New
Activity 1.1
What is it?
Read and understand the information very well then find out how much you
can remember and how much you learned by doing the activity and assessment.
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Board of Directors
President
From the diagram presented, emphasized that each line is working for the
interest of the person on the line above them. Since the managers of the company
are making decisions for the interest of the board of directors and the board of
directors do the same for the interest of the shareholders, it follows the goal of
each individual in a corporate organization should have an objective of
shareholders wealth maximization.
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b. Performing all areas of management: planning, organizing, staffing, directing
and controlling.
c. Representing the company in professional, social, and civic activities.
4. VP for Marketing: The following are among the responsibilities:
a. Formulating marketing strategies and plans. Directing and coordinating
company sales.
b. Performing market and competitor analysis.
c. Analyzing and evaluating the effectiveness and cost of marketing methods
applied.
d. Conducting or directing research that will allow the company identify new
marketing opportunities, e.g. variants of the existing products/services
already offered in the market.
e. Promoting good relationships with customers and distributors. (Cayanan,
2015)
5. VP for Production: The following are among the responsibilities:
a. Ensuring production meets customer demands.
b. Identifying production technology/process that minimizes production cost
and make the company cost competitive.
c. Coming up with a production plan that maximizes the utilization of the
company’s production facilities.
d. Identifying adequate and cheap raw material suppliers. (Cayanan, 2015)
6. VP for Administration: The following are among the responsibilities:
a. Coordinating the functions of administration, finance, and marketing
departments.
b. Assisting other departments in hiring employees.
c. Providing assistance in payroll preparation, payment of vendors, and
collection of receivables.
d. 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, 2015)
To be able to acquire assets, our funds must have come somewhere. If it has
bought using cash from our pockets, it has financed by equity. On the other hand,
if we used money from our borrowings, the asset bought has financed by debt.
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3. Operating Decisions – deal with the daily operations of the company especially
on how to finance working capital accounts such as accounts receivable and
inventories.
The financial system links the savers and the users of funds. 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.
Some of the financial instruments issued by users of funds such as the
shares of stocks and corporate bonds of publicly listed companies and the debt
securities issued by the National Government has traded.
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c. Mutual Funds - Mutual funds owned by investment companies that
enable small investors to enjoy the benefits of investing in a diversified portfolio of
securities purchased on their behalf by professional investment managers. When
mutual funds use money from investors to invest in newly issued debt or equity
securities, they finance new investment by firms. Conversely, when they invest in
debt or equity securities already held by investors, they are transferring ownership
of the securities among investors.
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• Corporate Bonds issued by publicly listed companies. These bonds
usually have higher interest rates than Treasury bonds. However, these bonds are
not risk free. If the company issued the bonds goes bankrupt, the holder of the
bonds will no longer receive any return from their investment and even their
principal investment has wiped out.
• Holders of Common Stock on the other hand are the real owners of the
company. If the company’s growth is encouraging, the common stockholders will
benefit on the growth. Moreover, during a profitable period for which a company
may decide to declare higher dividends, preferred stock will receive a fixed dividend
rate while common stockholders receive all the excess.
• The sale of new securities to the public referred to as a public offering and
the first offering of stock named an initial public offering. The sale of new
securities to one investor or a group of investors (institutional investors) is
referred to as a private placement.
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Money Markets vs. Capital Markets •Money markets are a venue wherein
securities with short-term maturities (1 year or less) are sold. They have created
because some individuals, businesses, governments, and financial institutions
have temporarily idle funds that they wish to invest in a relatively safe, interest-
bearing asset. At the same time, other individuals, businesses, governments, and
financial institutions find themselves in need of seasonal or temporary financing.
What’s more?
Explanation: An increase of the share price to PHP2, 600 per share means that
people are willing to buy the shares for that amount. If the learners were to sell
their shares at this point, it will result to a profit of PHP90 per share or PHP900 on
their whole investment. Hence, the value of their investment increased from PHP25,
100 to PHP26, 000. Therefore, there is an increase in shareholder’s wealth.
On the other hand, a decrease in the share price to PHP2, 300 per share
means that people are only willing to buy shares for PHP2, 300. If the learners were
to sell their investment at this point, they will receive PHP23, 000 which would
result to a loss of PHP2, 100. The decrease in value of their investment leads to a
decrease in shareholder’s wealth.
Activity 1.2
Direction: Read the problem and answer it correctly. Follow the format above when
you answer.
1. ABC Company bought 10 shares of Jollibee Corporation at PHP2, 000 each on
January 9, 2012. This brings his investments to PHP20, 000. What happens to the
value of his investment if the price goes up to PHP2, 520 per share or it goes down
to PHP1, 500 per share?
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Activity 1.3
Instruction: Think and create your own bank company name and describe the
function of Finance Manager or describe the Financial Management of your bank.
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(Bank name)
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What I Can Do
Activity 1.4
Direction: Write three examples of each circle and describe it briefly.
For example: Financial Instruments: My answer is cash-It is used for
exchange of something you want to buy (describe your answer on each circle)
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Assessment
Additional Activities
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