Business finance

Finance - is the most important factor in which a company can rely on.
Planning certainly offers a foundation but when you're talking about
infrastructure, financing is the only key to business growth and
diversification.

DEFINITION OF FINANCE:
Finance has distinct but connected and associated definitions:

1) “handling large amounts of money-particularly by governments or large

companies.

2) providing monetary support to a business organization,

3) the monetary resources of a nation, companies , or entity.

3 types of finance:

Public Finance:
The government helps deter market collapse by regulating capital
management, income distribution, and economic stabilization. Daily support
for these services is largely provided by taxation.

Corporate Finance:
Businesses offer financing through equity contributions and loan
agreements, and through bond purchases. Start-ups may obtain investments
from “angel investors” also known as “venture capitalists” which help
budding companies with great potential or they may sell stocks or bonds
from existing companies

Personal Finance:
Personal finance is focused on making more money and doing one’s best to
spend less. By starting a small company like small sole proprietorship,
taking on second job or part-time jobs, or saving, individuals will earn
more money.
FINANCIAL MANAGEMENT WITHIN A BUSINESS ORGANIZATION:

A business organization is an institution where the owners of expertise,

energy, and industry are connected to capital, its sources, and
investment. Its success is also measured by income and its operating
profit. Such an entity is largely based on contract and trade law
structures, property rights, and incorporation rights.

It is critical that the business owner takes careful account of the

various forms of business organization such as *sole proprietorship,
*partnership, and *corporation. Understanding the forms and types of
business organizations can help a business owner answer questions
concerning tax and ^legal issues or decisions involving finances and
personal concerns over ownership.

Sole Proprietorship:
This form of business organization consists of one person who does
business. In the Philippines, most of the owners of small and medium
enterprises are sole proprietors; thus, sole proprietorship is the most
numerous business organization in the country but contributes little when
it comes to aggregate *business receipts.

Partnership:
A partnership consists of two or more people working together in an
industry. A partnership may be as small as a company of two people or as
large as some of the major law or accounting firms that could have
hundreds of partners
FINANCIAL INSTITUTIONS:
“A financial institution is an entity that carries out financial
transactions* such as savings, loans, and deposits. Different entities
have transactions with different types of financial institutions. All must
be undertaken through financial institutions like depositing money to
getting a loan and exchanging currencies”.

1. Commercial Banks: Commercial banks receive deposits and provide their

customers with security and convenience. Part of the banks' original
intent was to provide safe keeping* for their money to customers.

2. Investment Banks: Although investment banks are called "banks," their

operations vary greatly from those of receiving deposits from commercial
banks. An investment bank is a financial institution offering a range of
services for businesses and certain governments.

3. Insurance Companies: “Insurance firms distribute risk by receiving

premiums* from a broad number of individuals who wish to cover themselves
and/or their loved ones from a common loss, such as a fire, car accident,
injury, litigation, disability or death.

4. Investment banks: usually don't deal with the general public. They
typically concentrate on helping corporations having initial public*
offering (IPO*) which means, it is the first time that a corporation is
publicly trading (first time of corporation to sell stocks to general
public)” “To facilitate securities* transactions a brokerage serves as an
intermediary between buyers and sellers. Brokerage companies are paid by
commission after successful completion of the transaction.

5. Investment Companies: Investment 1 companies are corporations wherein

individuals and other organizations invest in investment portfolios that
are managed by professionals who are tasked to keep track of market trends
and the performance of different financial products or instruments.

Nonbank Financial Institutions: Technically, these are not banks but do

executes the same kind of operations as banks.

6. Savings and Loans: They are also referred to as S&L or thrift banks.
Unlike commercial banks, the bulk of the financial transactions in S&Ls
are dedicated to residential mortgages-.

7. Credit Unions: “One substitute to traditional commercial banks is the

credit union. Almost all of the credit unions are structured as non-profit
cooperatives.
Equity- based: Financial Instruments Equity Instruments “represent’
ownership* of an asset’”. They generally have varied returns based on the
performance of the issuing company.

Preferred stock: ensures that if a corporation is to be liquidated and its

assets are to be dispersed, no assets can be allocated to common
stockholders until all the preferred stockholders' claims have been made.

Common Stock: investors, on the other hand, are the firm 's primary
shareholders. If the performance of the firm is driven, the success would
favor the common stockholders.

Debt-based Financial Instruments: Debt Securities have typically fixed

returns because of fixed interest rates. Sh’ort-term lending instruments
based on debt last or mature within “one year or less*”.

Short-term Debt based financial instruments*:

• “Treasury Bonds* and Treasury- Bills are issued* by the Philippine

government *.” These bonds and bills have usually low interest rates and
have very low risk of default since the government assures that these will
be paid.

• “Commercial papers* are promissory notes* issued by financial

institutions- or big corporations, typically 2 to 30 days only and not
more than 270 days. This instrument is protected only by the integrity* of
the issuer.”

• “Cash Equivalents* are loans that are also short--term debt securities
with good credit quality and high liquidity* characteristic.”

Long-term Debt-based^ Financial Instrument”*:

• Corporate Bond’s :are issued by publicly listed companies. These bonds

usually have higher interest rates than Treasury bonds.
 LECTURE 2

BUDGET: Budgeting* is a method whereby you establish a plan on how your

money will be spent. The spending program is called a budget

PRODUCTION BUDGET: A production budget provides information regarding

the number of units* that should be produced* over a given accounting
period* based on expected sales and targeted level of ending inventories.

FINANCIAL FORECAST :Every strategic plan is culminated by the preparation

of a financial plan. Financial plan includes forecasts. As discussed
already, forecasts are made with due consideration of the factors in
internal and external* aspect which affect the way the firm operates.

PROJECTED FINANCIAL STATEMENTS: Under the umbrella of financial

forecasts are financial statements* forecasts. A projected financial
statement* is a financial projection that presents anticipated financial
position of an entity, business operations outcome and cash flows* of the
company.
 Lecture 3

WORKING CAPITAL MANAGEMENT The current assets* that are utilized in

the company's activities and operations is called working capital*. This
includes cash, receivables accounts, inventories and expenditures paid in
advance or the prepaid expenses.

Interpreting Working Capital When the current assets of a company do not

outweigh its current liabilities (which means that current assets are not
enough to be used as payment for current liabilities), then in the short
term it can run into difficulty paying back creditors.

decreasing working capital ratio over a longer period of time may also be
a warning sign which justifies further evaluation of the finances and
operations of the company. It may be that the sales volumes of the company
are declining, for example, and as a result , the number of its accounts
receivable drops significantly.

Managing cash Being the most liquid asset, cash is an important account
in the statement of financial position* that may affect the liquidity*,
and solvency* of a company. It is also the most vulnerable when it comes
to theft.

Accounts Receivable Management An excellent business proposition is to

generate sales without offering a credit facility to customers. However,
this concept is theoretically sound, but not sustainable.

Inventory Management Managing inventory comprises developing and

implementing plans and strategies to meet production and merchandising
requirements effectively and satisfactorily, and reducing inventory
related costs.

• In a manufacturing company , there are 3 kinds of inventory: - Raw materials

– these are purchased materials* not yet put into production*.
- Work in process*
– these are goods and labor put into production* but not yet finished*.
- Finished goods*
– these are goods put into production and finished. These are ready to be
sold.

SHORT-TERM FINANCING*
Short-term funding* can be adapted for a duration of up to one year to
enable companies to pay primarily for their short-term needs.
Uses of Short-Term Funds

The best way to understand why firms resort to short-term financing is to

look into its operations. Firms need to access short-term funds for the
following reasons:

1. To sustain occasional rise in demand* for its goods and services- The
company would need to acquire more inventories and supplies. Additional
manpower will require more funds to devote to salaries.

2. Payment of short-term obligations- Firms need to satisfy their

financial obligations. At times they have to resort to short-term loans in
order to repay other obligations such as the supply credits and tax
liabilities.

3. Funding for short-term projects or programs- Short-term plans and

programs are identified during the annual planning of any firm. Even at
that point, the finance manager should already have an idea of whether
there would be sufficient funds or not.

4. Allowance for receivables- It may take some time before a firm is able
to collect money that is owed to them by customers. Before sales are
actually converted into cash, the firm has to supply funding to cover
maturing obligations and replenish inventory.

5. Funding for unforeseen events- Such events may be economic such as

sharp increase in the prices of inputs and prime commodities, a natural
calamity or anything that may arise as a result of the firm’s operations
like a defective product that negatively affected a customer.
Sources* of Short-Term Funds* Given here are sources* of short-term funds* for
different firms:

1. Supplier’s Credit- As raw materials* and supplies are part of working

capital*, the best sources of these are the suppliers providing credit to
business owners. This is the reason why a good relationship has to be
nurtured with suppliers. As much as possible, honor the credit terms. Some
suppliers charge a small interest rate on their deliveries to their
customers if not paid on time.

2. Advances from stockholders- personal funds advanced by a stockholder

to a company that usually requires interest. These usually require little
to no interest on advances, especially if the owner is advancing funds to
assist the company in sudden liquidity crisis. This source, however, is
depended on the availability of funds of an individual.

3. Credit cooperatives- provides lending services to its members. Members

usually pay contributions to the cooperative.
4. Banks – provide several loan products catering to different types of
needs. It can be short-term or longterm loans. Some banks also provide
credit facilities, not just to big corporations but also to small and
medium enterprises (SME) like government banks* such as the Development*
Bank of the Philippines (DBP)* and Land Bank of the Philippines (LBP).

5. Lending Companies – companies that are dedicated to lending. They

usually charge higher interest than banks, but their credit requirements
are more lenient compared to banks.

6. Informal lending sources such as “5/6”- Interest is usually paid per

month, and monthly interest is (6- 5)/5 or 20%. Annual interest is
actually 20%*12 or 240%. Therefore, this source of financing should never
be considered because you will end up working for the creditor.
The financial instruments* below are used in short term financing* of
companies

• Commercial Paper* “This is an “unsecured promissory note” on the global*

money market*, with a predetermined maturity of 1 to 364 days or within 1
year. Large corporations issue it to get financing to fulfill short-term
debt obligations. This is only backed by a commitment made by an issuing
bank or company to pay the face sum on the date of maturity indicated on
the note.

Asset-backed commercial paper (ABCP)* “Naturally, ABCP* is a short-term

instrument* that matures between 1 and 180 days* from date of issuance of
financial institutions like banks. Other financial assets serve as
collateral for this type of commercial paper*.”

Promissory Note* This type of instrument is a kind of negotiable

instrument * used by issuer and payee under which one party (the issuer)
makes an unconditional promise or written commitment to pay the other (the
payee) a certain amount of money in certain conditions, either at a
specified future period or on the payee 's request (on demand of the
payee*).

Asset-based Loan* This form of loan, mostly in the short term**, is backed
by the assets of a firm. The usual assets that are used to collateralize
the loan are real estate, accounts receivable (A / R), inventory and
equipment. A single asset category or a combination of assets ( for
example, a combination of Accounts receivables and equipment) may be used
as collatera

Repurchase Agreements* “The maturity of these instruments range from one

day to less than two weeks, though typically it is only traded for just
one day. There is an agreed fixed price and fixed date as arranged by the
issuer of security and the investor.”
Sources of Long-term* Funds

Equity Financing* “This involves preferred stocks** and common stocks*

which are less volatile in terms of cash flow commitments*. It does,
however, result in a dispersion of shareholding, control and profit. The
cost of equity* is therefore usually higher than the cost of debt-which
is, however, a deductible expense*-and so equity investment will result in
a higher threshold rate that can reduce some decline in the risk of cash
flow.

” • Corporate Bond* “A corporate bond* is a bond issued by a company to

help raise capital to grow and develop its enterprise. The term is
typically attributed to longer-term debt instruments*, with a maturity
date* commonly following at least one year after their issuance date. ”
Some corporate bonds* have an embedded* call right allowing the borrower
to repay the debt before its due date. Many bonds, or convertible b

• Capital Notes* Capital notes* are a type of convertible security* which

can be exchanged into shares. This is the reason why they are termed as
equity vehicles*. Capital notes are similar to bonds, in that they also
have no expiry date or exercise price (thus, the entire fee that the
corporation hopes to obtain is charged when the capital note is released
for the future issue of shares).

• Internally generated funds Not all profits are distributed to

stockholders. Most of the profits are re-invested and used by companies to
finance their needs. Instead of declaring cash dividends, the company can
use internally generated funds for expansion or to finance other types of
capital investments.

Banks They provide long-term loans which also depends on the type of
business needs. For instance, a 5-year to 10-year loan may be granted if
the purpose of the loan is construction of an office building. They
provide lower interest rates* than other institutions in the market but
they have a lot of requirements and processes.
DEBT AND EQUITY FINANCING Choosing between investing in equity and
taking out a loan for a company is a struggle for all entrepreneurs when
they need capital to grow a business. A dilemma between opting for a bank
loan to finance your business operation and looking for a venture
capitalist or investor is a very tough decision for the financial manager.
Equity* funding also includes giving an investor more shares of common
stock. With more common stock shares issued and outstanding, the level of
ownership of previous stockholders is being reduced.

▪ Equity financing If an entrepreneur wants to grow a company but cannot

afford the risk to take on debt, an investor that is willing to finance
the operations of the company may seem like the perfect answer to that.
It's capital without the redemption or interest-causing- headache, after
all. Yet the Pesos come with big strings attached: with the venture
capitalist or angel investor, you have to split the profits depending on
the predetermined agreement.

Debt financing The banking arrangement or terms that you have with a bank
that loans you money is somewhat different from an investor's loan — it
does not demand you to give up a portion of ownership of your business.
But if you're carrying on too much debt, it is a problem that may hinder
the expansion of your firm.

• Commercial Banks* “Accepting deposits and providing convenience and

guarantee to the customers that their money is secured in their
institution are the main purposes of commercial banks. One aspects of the
banks' original intent is to provide safe keeping for their money to
customers.
Nonbank Financial Institutions* These institutions are not banks but they
offer similar services as provided by commercial banks*.

• Savings and Loans* “Savings and loan* companies, also called S&Ls or
thrifts, in many respects emulate banks' services and operations. The
discrepancies between commercial banks and S&Ls are unclear to most
customers. lBy regulation, companies with savings and loans must have 65
percent or more of their loans in mortgage debt or residential loans,
although other types of loans are permitted

• Credit Unions “Another substitute to standard commercial banks is the

credit unions. Unlike S&Ls, credit unions typically pay higher savings
rates and lower loan charges relative to commercial banks. Nearly all the
credit unions are structured as non-profit cooperatives. Unlike banks and
S&Ls, credit unions can be chartered at the state or federal level.”

• Shadow Banks* “It is a group of investment banks**, insurers* and other

non-bank financial institutions* that imitate some of regulated banks'
operations, but do not function under the same setting that is regulated
and monitored closely.”

DOCUMENTATION LOAN REQUIREMENTS “A documentation loan* is a type of

loan demanding full details to substantiate income and asset statements by
a borrower to obtain financing*. The huge percentage of loans are loans
related to secured loans requiring full documents.

Income Verification* “The most important aspect you would need to provide
a creditor to indicate you can repay a loan is to check your company
profits and your proof of income. There are many ways to check profits,
which can have different criteria for each lender

Asset Verification* “Creditors will recognize your assets as they verify

your financial capability in full. Not everyone need to learn your "total
value" to get your loan prolonged or stretched. And, if you put any
collateral on a loan, with extensive reports, you would need to check the
value of that collateral

Liens and Liabilities* “Debtors can't quantify your assets to assess the
financial security alone. We must always take into account the loans and
obligations. For instance, if you or your company take out a mortgage,
your mortgage lender may require information whether you have loans to
other lending institutions as well. This will impact your ability to have
a new loan on the basis of your present income.
LOW OR NO DOCUMENTATION LOAN* “There is also what we call low
documentation loan that demands hardly any examination of the statements
when applying for a loan. Documentation loans* allow a borrower to provide
proof of income, proof of assets and other documentation before the
underwriting process progresses. None of these items are needed by low
documentation loan.

The 5Cs of Credit Financial institutions or intermediaries need a way to

evaluate the credit worthiness of potential clientsindividuals and firms
who apply for credit.

This serves as the basic requirement when applying for a loan.

✓Character –this refers to an applicant reputation and the enthusiasm of

the borrower to meet his or her obligations to the lending institutions or
entities
✓ Capacity – a customer’s ability to generate cash flows; for a firm, a
solid business plan is needed
✓ Collateral – security pledged for payment of the loan to minimize
default risk
✓ Capital – sources of finances* of the borrower
✓ Condition* – present conditions of the market, economy and even
politics
 21st century

Literature:

Literature is the written, printed or oral productions of the human mind

collectively, which deals with themes of permanent and universal interest,
characterizedby creativenessandgraceof expression,as poetry, fictions,
essays, etc., distinguished from works of scientific, technicalor
journalisticnature.

2 Types of literature:

Oral literature:

is the literature of the ancient periods when they did not yet have much
concern about an enduring preservation of the expressions of their wits
and emotions or their experiences.

Written literature:

is one that is produced from the use of the pen by literary writer.
Written Literature is more permanent than oral literature because it
remains as is.

SOME OF REASONS WHY PEOPLE WRITE:

● FOR SELF EXPRESSION

● TO SPREAD KNOWLEDGE AND INFORMATIONS
● TO PASS ON IDEAS AND VALUES
● TO CONVEY TRUTH AND ACCURACY AND EVAULTION

THE QUALITIES OF GREAT LITERATURE:

● PERMANENCE
● Universality
● Artistry
● Intellectual value
● Spiritual value
● Style
● Suggestiveness
 Prose and poetry

Prose:
is discourse that follows the continuous and usual flow of conversation
which uses sentences forming paragraphs to express ideas, feelings, and
actions. It is divided into two major divisions,namely fiction and
non-fiction.

Fiction:
is a type of prose writing that is the product of the author’s imagination

● Short story
● Novel
● Play
● Legend
● Fable

Short Story
is a sequence of events including one or more characters, one narrative,
and one single idea.

ELEMENTS:
● Point of View
● Conflict
● Plot
● Characters
● Theme
● Setting

Novel
is a long work of fiction that has chapters where many characters are
involved and spans long period of time

Play
is a scripted story executed on stage

Legend
is a narrative about the origin of man, place, event, and happenings.
Fable
is a narrative where the characters are animals and non-living objects
that speak and act like people, and usually ends with values that can mold
the reader’s attitudes

Non-fiction

Non fiction:
is a type of prose writing that is based on facts, real events, and real
people.

● Essay
● Oration
● Biography
● Autobiography
● News
● Letters
● Diaries/Journals

Essay
is an attempt to express the viewpoint and judgment of the writer on a
dilemma or event.

Oration
is a formal treatment of the subject and intended to be spoken before a
crowd.

Biography
is a literary work that gives the life account of a person written by
another person.

Autobiography
is a literary work where the author writes his own life account.

NEWS
is a report of expected and unexpected events in society and government
and incidents in the field of science, business, etc.

Letter
is a written message sent from one person to another person via writing
through a medium. Letters can be formal and informal.
Diaries and Journals serve as account of personal experiences. They are
synonymous but there is an important difference:

● diary is precisely a record of personal or private and daily

experiences.

● journal depending on the context, could mean a more universal record

or logbook but more importantly a technical journal, that is a
scientific or industry-related publication/periodical.

POETRY

POETRY:
a type of literature that combines the sound and meaning of language
to create and express ideas and feelings.

3 TYPES OF POETRY

Narrative poetry tell stories and has two forms:

Epic and Ballad.

Epics
are lengthy poems that embody the adventures of epic heroes and
divine forces. They are the oldest remaining form of poetry.

Ballads
are narrative poems meant to be sung. They are briefer than the
epics and they usually tell stories about a person

Dramatic poetry
reveal stories, but one or more characters act out the poem. There
are plays that are written as dramatic poetry.

Lyric poetry
the most familiar of the three, is a brief poem that articulates
the poet’s thoughts and feeling.

LYRIC RHEIN ( GREEK ) LYRE

 FORMS OF LYRIC POETRY
HAIKU
one of the shortest lyric poems, is a Japanese verse of 17 syllables
arranged in three lines, the first line has 5, the second 7, and the
third 5.

ODE
is a serious elaborate lyric poem full of high praises and noble
feelings usually about things.

ELEGY
is a poem of meditation on life and death. Many elegies mourn the
death of a famous person or a close friend

SONNET
is a 14-line lyric poem with a certain pattern of rhyme and rhythm.

SONG
is a lyric poem intended to be sung.

PRE SPANISH AND SPANISH PERIOD.

LEGENDS
are narrative prose which aim to entertain and tell the story of
how an object, place, or name originated.

FOLK TALES
are narratives about life, quest, love, horror, and comedy where
one can get lessons about life.

EPICS
are long narrative poems that dealt with the protagonists’ or
heroes’ series of heroic achievements or events.

MYTHS
are narratives that describe and portray in symbolic language the
origin of the basic elements and assumptions of a culture

FOLK SONGS
are one of the eldest types of Philippine literature that appeared
in the Pre-Spanish time. Folk songs reflect and preserve the culture
of the early Filipinos
 SPANISH PERIOD 1565-1898

FIRST BOOKS

The Christian Doctrine (Doctrina This was the first Tagalog and
Cristiana) Spanish book published in the
Philippines in 1593 in
Xylography.

Libro de los Cuatro Post Primeras This was the first book
de Hombre published in typography

Nuestra Senora delRosario This was the second book printed

in the Philippines authored by
Fr. Blancas de San Jose in 1602.

SPANISH PERIOD 1565-1898

FIRST BOOKS

Ang Barlaan at Josephat This book was the first Biblical

story published in the Philippines.

The Passion This book narrates the life and

sufferings of Jesus Christ, and it
is normally recited during the lent
season.

Urbana at Felisa The father of Tagalog classic

prose, Modesto de Castro authored
this book.

Ang Mga Dalit Kay Maria (Psalms for This is a collection of songs
Mary) praising Virgin Mary.
Tibag This is a ritual to remind the
people about the search of Saint
Helena for the Holy Cross where
Jesus Christ was nailed and died.

Lagaylay is a special occasion to get

together during the month of May
for the Pilarenos of Sorsogon

Cenaculo is a dramatic performance to

re-enact the passion and death of
Jesus Christ. There are two kinds
of cenaculo: a.Cantada which is
chanted like the Passion, and the
b.Hablada which has a more
dignified theme where the lines are
spoken in a more deliberate manner
showing the rhythmic measure of
each verse and stanza.

Panunuluyan is a play where the search of

Virgin Mary and Saint Joseph for an
inn to deliver the baby Jesus is
reenacted

Salubong is an Easter Sunday play, usually

held before sunrise, stages the
meeting of the Risen Jesus Christ
and His Mother

Carillo (also known as shadow play) is a

dramatic entertainment performed
during dark nights.

Zarzuela (also known as the Father of Drama)

is a musical comedy or melodrama.

Sainete is a brief yet exaggerated musical

comedy wherein the characters
depicted came from the lower class.

Moro-Moro is a play held in every city fiesta

for the individuals to enjoy and
commemorate their Christianity
Karagatan is a poetic competition where a
tradition is performed based on a
legend about a princess who dropped
her ring into the middle of the
ocean and who offered her hand in
marriage to anyone who can find it.

Balagtasan is a poetic debate about a

sociallyrelevant topic or issue.
This is held in honor of Francisco
“Balagtas” Baltazar

Dung-aw is a chant in free verse by a grieving person beside the corpse

of the dead.