BUSINESS FINANCE o financial resources must be utilized in a manner

that minimizes company costs and lost

Lecture of Dr. Alain Santos, CPA opportunities

THE FINANCE FUNCTIONS Portfolio Management

Why do people go into business? Investment Portfolio
1. To earn profit o refers to the aggregate of assets held as
o This is the primary goal and must be sustained in investments by an organization or individual
order to meet the other objectives o Could include stock certificates, bond certificates,
o If the business is earning profit steadily, it can money market placements, title of real estates
spend for value-adding activities held for speculation and precious metals and
stones eg. gold etc.
2. To increase its value as an economic entity
o Growth and Stability are measures of value in a Financial Manager
business • Manages the financial resources of the company
o Growth is accompanied by increase in sales • Tasks would include
volume and owners equity with increase in assets à Financial planning and analysis – Operations
and production capacity and financial positions are analyzed to pinpoint
o Stability refers to the ability to survive the areas of possible improvement
challenges of the business and continuity of à Asset Management
operations despite the anticipated business risks. à Liability and Owner’s Equity Management
à Managing the Finance Department
3. To improve the quality of life in the community
o Social responsibility is possible only if the business Finance Department Head
has a stable and growing income Controller
o Business help through supporting projects, - Planning including budgeting
community building, helping the environment - Accounting reports
o He adheres to legal and moral standards by - Systems and Management
adopting company objectives, policies and - Tax Administration and government reporting
practices consistent with the law - Protection of assets
o Improves the life of the people working in the - Economic appraisal
company and the beneficiaries thereafter
Treasury Manager
What is Finance? - Determines the sources of fund and requirement
• It is the art and science of managing money - Banking and Cash Management • Corporate
• It is also the art of managing the financial Investments
resources of a business - Credit and Collections
- Insurance
Functions of Business Finance - Foreign exchange Management
1. Allocation of financial resources
o Involves the determination of the requirement of MONEY AND BANKING IN PHILIPPINE SETTING
the funds Concept of Money
o Projects have to be determined based on plans, Money
financial objectives and standards o In economics, money is anything that is generally
o Aim is to channel to profitable activities and to accepted as payment for goods and services or
minimize the costs and risks as repayment for debts
à The Lapu-Lapu banknote will be the second highest
2. Procurement of Funds currency denomination ever issued by the central
o Making funds available at the least cost to the bank after the limited edition P100,000 bill made for
company when it is needed the Philippines centennial year in 1998.
à Funds can be sourced through: o Money consists of currency and cash holdings in
a. Capital equity – contributed by owners or the form of notes, coins and checks
stockholders; cost in the form of dividends or o Money refers to wealth or other assets that can
shares in profit easily be exchanged for cash
b. Debt equity – these are borrowed funds; cost in o Money could also mean some capital earnings or
the form of finance charges (interest, fees, service one’s returns from an investment or capital
charge) o In terms of usage, money facilitates the
functioning of the economy
3. Efficient and effective utilization of resources
o sees to it that financial resources are being used Evolution of Money
for their purpose. Barter System
o attainment of short term and long term objectives o Involves the exchange of an item based on the
based on plans and standards perceived value and the utility it gives

CARLA MAE TORIO | 3LM-2

 o The direct exchange of goods and according to How will you know if your money is fake?
Adam Smith (Wealth of Nations) it is the precursor 1. Make sure the texture is rough
of money 2. Check for blue and red fibers (visibly scattered
under UV light)
Commodity Money 3. Make sure that the bill has the correct
o Money with value derived from composition from denomination, Filipino icon, natural wonder and
a commodity (such as silver or gold coins, cowrie symbol of nature on its obverse and reverse side
shells, barley, salt, large stones etc.) 4. Look for the hidden watermarks
o Commodity money is a commodity that has 5. Check the security threads
intrinsic value. Intrinsic value means that the 6. Make sure that the 500 and 1000 peso bills have
commodity has value even if it is not used as OPD (Optical Variable Device) Patches
money. 7. Feel the embossed text
8. Read through the smallest details for
Precious Metals inconsistencies
o are rare, naturally occurring metallic chemical a. spelling of words
element of high economic value b. Signatories and position
o precious metals were important as currency but c. Increasing font size from left to right
are now regarded mainly as investment and d. Baybayin script on top of the lower right corner
industrial commodities denomination that means “Pilipino”.

Paper Currency The New 1,000 Polymer Bill

o Paper money is a country's official, paper The endorsement of the 1000 Peso Polymer bill 2022 faced
currency that is circulated for the transactions concern from The Philippine Fiber Development Authority
involved in acquiring goods and services (PHilFIDA) as they opposed shifting to Polymer from Abaca
o The printing of paper money is typically regulated fibers in the production of banknotes because they
by a country's central bank or treasury in order to elaborated that the Abaca is the strongest, the longest,
keep the flow of funds in line with monetary policy and most absorbent natural fiber in the world. They
o The first paper money circulated in the Philippines wanted to make sure and promote the Philippines’
was the Philippine peso fuerte issued in 1851 by the homegrown industry. As Philippine News Agency (PNA),
country's first bank, the El Banco Español Filipino the current bill is made of 80% cotton and 20% Abaca.
de Isabel II
Why Polymer Banknotes?
Functions of Money 1. Polymer banknotes are smarter.
A. As a medium of exchange - More secure. Detailed images and sophisticated
- Money is used as a means of payment for security features make polymer banknotes more
transactions for the sale and purchase of goods difficult to counterfeit.
and services - More eco-friendly. Don’t panic just because it’s
- Money is available as cash, checks or electronic plastic. Producing polymer banknotes has less
cards environmental impact given their smaller carbon
B. Unit of account footprint, lower water and energy usage, and less
- Money is used to measure the value of goods and environmental toxicity.
services - Recyclable. Go green with polymer banknotes.
C. As a store of value When deemed unfit, these banknotes can be
- Money serves as a repository of purchasing power recycled to produce various products such as
over time building components, plant pots, and garden
- If prices increase, the value of money decline; furniture.
which means that the cost of holding cash will 2. Polymer banknotes are cleaner.
mean fewer goods that can be purchased - Shorter survivability of viruses and bacteria. The
brought after the price increase smoother, non-absorptive surface of polymer
- Other assets that are store of value: stocks, bonds, banknotes makes them cleaner. Based on studies
land, jewelry reviewed by our Department of Health, the
survival time of bacteria and viruses in polymer
Characteristics of Money banknotes is significantly shorter than in paper
1. Portability banknotes.
2. Acceptability - Can be sanitized. You can always keep your
3. Divisibility polymer banknotes clean. You can sanitize them
4. Durability with less risk of damage compared to paper
5. Scarcity banknotes.
6. Stability in Value 3. Polymer banknotes are stronger.
7. Cognizability - More durable. Rain or shine, your polymer
8. Uniformity banknotes can withstand the test of temperature
9. Malleability and time. They can last much longer than paper
10. Non-Counterfeitability banknotes given their resistance to water, oil, dirt,
and general wear and tear.
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 - More cost-effective. With a lifespan that is at least The Value of Checks
2 to 5 times longer than paper banknotes, polymer • Paper money has drawbacks. It could be a
banknotes will lead to significant savings on security risk carrying it or could be very
printing, distribution, and replacement costs in the burdensome bringing it to a bank.
long run. • As a better alternative, the online payment system
4. Polymer banknotes have a distinct and functional and the use of checks were introduced
design. • Check is a promise to pay on demand, money
o Its distinct design and texture make the new deposited with a bank or other financial
polymer banknote easily distinguishable from institutions
paper banknotes. It also features the country’s • Checks promote convenience in settling
national flora and fauna symbols: the Philippine payments and can be written for any amount
eagle (Pithecophaga jefferyi), the Sampaguita • The irresponsible issuance of check can cause you
flower (Jasminum sambac), along with the to pay more than the required or it can lead to a
Tubbataha Reefs Natural Park, a UNESCO World lawsuit.
Heritage Site, and our nature’s pride, the South
Sea Pearl. BP 22
- More inclusive. The new polymer banknote also o It is the Anti-Bouncing Check Law
has five embossed dots as a tactile feature for the o An act of making or issuing a worthless check or a
visually challenged. check that is dishonored upon its presentation for
5. A change for the better. payment
o Central banks around the world change the o Bank penalty amounts to 2,000 per bank check
designs of their banknotes every 10 years, on and 200 for every 40,000 fraction
average, and the current series of Philippine o Check amount is 100,000. Bank penalty is 2,400
banknotes first went into circulation more than ten
years ago. Bank Clearing Process – Types of Checks
o We will now join Canada, Australia, New Zealand, o Local checks – checks that clear in 3 days
Malaysia, Mexico, Fiji, and Vietnam as polymer o On Us Checks – checks that can be cleared in 1
banknote users. These countries have days
experienced a big reduction in counterfeiting o Regional Checks – checks that can be cleared in
cases after shifting to polymer banknotes, among 5-7 days
other benefits. o Out of Town Checks
à CHECK IMAGE CLEARING SYSTEM – Will only take 1 day
BANKING PROCESSES to clear, based on the technical standard set by the Phil.
Financial Intermediaries Clearing House to compliant banks
• It is a financial firm, such as a bank, that borrow à Cheques that have undergone successful clearing are
funds from depositors and lend them to borrowers called CLEARED CHEQUES
• Basic Structures
à Depository Institutions (banks, savings and loan, New Philippine Peso Check Design
credit union) - The new checks are bigger with dimensions of
à Investment Intermediaries (investment banks, 8"x3". They also include the drawer's agreement: "I
mutual funds, finance companies) / We allow electronic clearing of this check and
à Contractual Savings Institutions (insurance hereby waive the presentation of the original to
companies, pension funds) the drawee bank."

Types of Bank Accounts Rules in Issuing a Check

1. Savings Account - Make sure that the checks issued are sufficiently
- interest earning and withdrawal is evidenced by a funded
passbook or use of ATM. - Use dark colored ink, do not use pencil or erasable
2. Checking Account ink or correction ribbon
- also known as demand deposit or current - Write legibly and make sure that all required
account. Non- interest earning and withdrawal is information are clear & complete
through the issuance of check or use of ATM - Avoid any mistakes in writing. Wont be accepted
3. NOW account for clearing even if erasure or alteration is
- Negotiable order of withdrawal. A combination of countersigned
savings and current but has limitation in check - Left justify when writing on the spaces; rule put
issuance. Can be made payable to Cash. empty spaces
4. FCDU account - End the amount in words with “only”; do not leave
- Foreign Currency deposit unit. Interest earning big spaces
and has a passbook as record of transactions - Make sure that the bank is updated with the
5. Time Deposit account authorized signatories
- a placement account that gives interest and has - Avoid stapling, pinning, crumpling, folding or
a specific amount of time. binding checks
- Review immediately monthly bank statements.
CICS Checks that are honored will no longer be
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 sent with bank statements; only digital copies of 4. Asset Valuation – market prices determine the value of
honored checks will be provided. Physical checks a firm or the firm’s assets, or property
will be kept by the bank for 180 days only. 5. Provides price discovery or setting – a way to determine
the relative value of different items, based upon the prices
Reasons for Bank Returned Checks the individuals are willing to buy and sell them
1. DAIF – Debit against Insufficient Fund 6. Risk Management - they enable the markets protection
2. DAUD – Debit against Uncleared Deposit against different types of risks such as in the case of future,
3. Account Closed options and other derivative contracts
4. Stale Cheque – over 6 months old 7. Arbitrage – simultaneous buying and selling of securities,
5. Post Dated Cheque – if deposited outright currencies or commodities in different market locations to
6. Error or alteration in Cheque Information (amount in take advantage of the different prices of the same asset
words, amount in figures date, payee, signature
7. Signature differs or is not acknowledged by the bank Debt and Equity Markets
Debt Instrument
Surely Funded Checks - Bonds and Mortgages
1. Manager’s Check - Evidenced by a bond or mortgage certificate
2. Cashier’s Check - Instrument wherein the borrower (e.g.
government) will have to pay the holder of the
Crossed Check instrument interest and principal payments
- These are checks required to be deposited to the - The instrument has a maturity date but interests
account of payee only Can’t do bank and principal can be paid at regular intervals
encashment unless it is uncrossed. - Short-term if maturity is 1 year or less
- Evidenced by two diagonal lines on the upper left - Long-term if maturity is 10 years or longer
corner - Maturity between 1 and 10 years are said to be
intermediate-term
FINANCIAL MARKET - Has the right to claim first over the stockholders in
Financial Markets case of closure of the company
• It is the meeting place for the household, for the
firms and the institutions (government or private) Equity Instruments
that either has extra funds or need funds in order - Common or Ordinary Stocks
to invest or earn - Evidenced by a stock certificate
• Without the global financial markets: - Income in form of dividends (cash, stock, property,
– Government would not be able to borrow scrip)
money - Equities make periodic dividend payment to
– Companies would not have access to stockholders
capital they need for expansion - Considered as long-term securities because they
– Investors and individuals would be unable have no maturity date
to buy and sell foreign currency - Considered as owner of the company
• Public financial markets include national, state - Have the right to vote on important issues and
and local government are borrowers for elect its directors
infrastructure projects, health, education and - Considered as residual claimant, creditors has the
other activities right over them in case of company closure
• Corporate financial markets are where large
corporation raise funds Benefits
• Normally called the bond and stocks market DEBT FINANCING
No effect on ownership
Corporation and the financial market
o Corporations have reliance on the financial Cancellation of obligation after full payment
market for short term funds and long term funds Interest expense is tax deductible
o They may raise financial capital in 2 ways: Could be short term or long term
– Debt – borrow money through debt offer
EQUITY FINANCING
of corporate bonds or short-term notes
– Equity – selling ownership in a company Not riskier as debt
through an issue of common stock No repayment of funds
Gain credibility through the network of investors
Function of financial markets
1. Raise capital – important source of capital for various There is no expectation of immediate returns
users
2. Provides commercial transactions – provides working Drawbacks
capital or arrangement of sale of a DEBT FINANCING
product in another location Must pay back upon the terms set
3. Investment – stock, bond and money market provides
May cause cash flow problems
an opportunity to earn
Collateral is needed
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EQUITY FINANCING o Known as the “barometer of the company’s
economy”, companies listed on stock exchanges
Payment of the investors is highly dependent on the
contribute to the GDP
success of the company
Investor immediately become owner 2 Trading areas of stock market
Investors must be consulted for policies and decisions Organized Stock Exchange
- Stock exchanges that have physical locations
Primary and Secondary Market where trading happens
Primary Market - E.G. Philippine Stock Exchange, New York Stock
o Refers to the original sale of securities by Exchange, Tokyo Stock exchange
governments and corporations
o The corporation or the government is the seller Over the Counter (OTC) Exchange
with the intention of raising money for them - Trading using a system of computer screens and
o Normally selling is behind closed doors telephone
o 2 types of primary market transactions - E.G. NASDAQ (National Association of Securities
1. Public offering – involves selling securities to the Dealers Automated Quotations, a computerized
general public system for trading in securities) – an American
2. Private placements – is a negotiated sale stock exchange based in New York City.
involving a specific buyer
o Public offerings of debt and equity must be Trading System
approved and registered with the Securities and Open Outcry System of Trading (Floor Trading)
Exchange Commission - A method of communication between
o An Investment Bank assists in the IPO (initial price professionals on a stock, commodity or futures
offering) selling of securities in the primary market contract exchanges typically on a trading floor
- In an open outcry auction, bids and offers must be
Secondary Market made out in the open market, giving all the
o After the securities are sold to the institutions and participants a chance to compete with the order
individuals, they can be traded in the secondary with the best price
market between investors - Traders communicate verbally and use hand
o Popularly known as Stock market or Stock signals
Exchange - Before the wide-spread application of
o Examples are the Phil. Stock Exchange, New York electronically trading; most of the trading (buying
Stock Exchange, Tokyo Stock exchange and selling of stocks) was done on the floor of the
o Securities brokers and dealers are crucial to a well- exchange -- very labor intensive
functioning secondary market How does it work?
– Brokers are agents of investors who match 1. An order is placed: An investor would tell his
buyers with sellers of securities and will buy broker to buy X amount of shares of an XYZ
and sell securities for their clients corporation. The broker would sign a buy order
– Dealers buy and sells securities on their and give it to the wire operator who then puts it
account and is trading on their behalf on the brokerage firm's desk on the floor of the
exchange
Functions of Secondary Market 2. Trade is executed: This is where most of the
1. They help in providing liquidity through the selling yelling and hand signals happen. A runner takes
of financial instruments to raise cash. the order to a trader in the pit and the trade is
– Increasing liquidity would make the stocks executed by open outcries and hand signals.
desirable and easier to sell in the primary
market.
2. They determine the price of the security that
issuing firms sells in the primary market
– The higher the price in the secondary
market, the higher will be the price that
the issuing firm will receive for a new
security in the primary market

Stock Exchange
o It is an organized secondary market
o An entity which is in the business of bringing buyers
and sellers of stocks and securities together
o Purpose is to facilitate exchange of securities
between buyers and sellers, thus providing a
virtual or real marketplace Screen Based System
o Different securities are purchased and sold - Electronically linked over-the-counter market in
which dealers buy and sell stocks

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 - E.g is NASDAQ (National Association of Securities MONEY MARKET AND CAPITAL MARKET
Dealers Automated Quotations. NASDAQ Stock Money Market
market operated in 1971 as the world’s first • Network of financial institutions, corporations,
electronic stock market investors and governments which deal with the
- Philippine Stock Exchange is using the MakTrade short term lending of funds
system • Exists to provide the loans that financial institutions
- MakTrade system tallies all orders into one and governments need to carry out their daily
computer and ensures that this orders match with operations
the best bid/offer – E.g. Banks may need to borrow money in
- MakTrade also enables PSE to facilitate the the short-term or for liquidity, they may use
trading of securities in a broker- to-broker market the money market to do so
through automatic order and trade routing and • Money markets are the mechanisms that bring
confirmation borrowers to meet short-run liquidity needs and
- Also keeps an eye on any irregularity in the investors together without the costly
transactions with its market regulations and intermediation of banks and eventually deal with
surveillance databases irregular cash flows
• Components of the financial market where
Philippine Stock Exchange financial instruments with high liquidity and short
Role of PSE in the economy maturities are traded
1. Bring together companies which aim to raise capital • Money-market transaction occurs in the investor’s
through the issue of new securities. Easy access of funds home currency to minimize a risk of loss brought
addresses liquidity. about by exchange-rate fluctuations.
2. PSE plays a vital role in the financing of productive • Money Market securities are short-term instruments
enterprises that use the funds for growth and expansion of with an original maturity of less than 1 year
new jobs
3. It provides a suitable market for the trading of securities Players in the Money Market
to individuals and organizations seeking to invest their Companies
saving or excess funds through the purchase of securities. o When companies need to raise money to cover
4. PSE has committed itself to (a) protecting the interest of their payroll or running costs, they may issue
the investing public; and (b) developing and maintaining commercial paper short-term unsecured loans for
an efficient, fair, orderly and transparent market. 100,000 or more than has a maturity period of 1-9
months
Trivia o A company that has a cash surplus may “park”
o In order to for a broker to trade stocks in the stock money for a time in short-term, debt raised
market they must buy a seat (seats in the NYSE financial instruments such as treasury bills and
range from $2.5 million to $4.0 million) -- There are commercial paper, certificate of deposits or bank
currently 1,3600 seats in the NYSE exchange deposits
o The most expensive stocks sold in the NYSE is
Warren Buffet's Berkshire Hathaway at Banks
$219,000/share o If demand for long-term loans and mortgages is
o The first listed company in the NYSE was the Bank not covered by deposits from savings accounts,
of New York banks may then issue certificates of deposit, with
o Wall Street, started out as an actual wall built to a set interest rate and fixed term maturity of up to
protect the Dutch settlers from British and Native five years
American attacks; this was when New York was
called "The New Amsterdam Settlement“ Investors
o Originally stocks were traded in a "Call Market" o Individuals seeking to invest large sums of money
where the president would read out each stock at relatively low risk may invest in financial
and the brokers would trade them; there was an instruments. Sums of less than 50,000 can be
afternoon and morning session invested in money market funds

Phil. Dealing Exchange Corporation Money Market Instruments

o Official Calculation Agent for new Philippine fixed 1. Treasury bills or T-bills - safest and issued by the
income interest rate benchmarks. national government. Maturity is 1 year or less.
o Under this engagement, PDEx through its SRO, 2. Commercial Paper - is a short term obligation of a
monitors compliance with timeliness and private sector firm or government sponsored
accuracy standards for price and transaction corporation that has a very good credit rating
reporting, further strengthening the interest rate and are issued by banks. Can be rolled over using
benchmark setting process. the proceeds of a new issue to repay the principal
o Operations on setting the new PDS (Phil. Dealing of a previous issue. This benefits issuers to borrow
System) Treasury Reference rates money for longer term at short-term interest rate.
3. Time Deposits – are certificates of deposits (CD)
which are interest bearing that cannot be
withdrawn before a specified date. Interest
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 depends on the length of maturity and have o It represents two major cash flows, which are the
maturity dates after 30 days, 60 days, 90 days, 1 periodic interest payment and the principal paid
year up to 5 years. at maturity date
4. Banker’s Acceptance - it is a promissory note o As at September 2019, the following are the bond
issued by a firm to a bank for a loan, then the bank issuances by the government and business firms in
resells the PN in the money market at a discount the Philippines
with guarantee of payment. Acceptances usually – ALFM Peso Bonds
have a maturity of less than 6 months – Grepalife Bonds
5. Repurchase Agreement or Repos – happens – Philam Bonds
when a bank sells securities it owns to an investor – Philequity Bonds
with an agreement to repurchase the securities at – Sun Life Prosperity Bonds
a specified higher price at a future date. – RCBC “Sustainability” Bonds
6. Government agency notes – can be national, – Robinson’s Bank Fixed Rate Corporate
provincial or local. Considered as heavy Bonds
borrowers – PH Samurai Bonds
7. Interbank loans - loans extended from one bank – Ayala Land Inc. (PH) Bonds
to another with which there are no affiliations.
Many loans are across international boundaries Credit Ratings
and are used by the borrower to relend to its o Provides an indicator or default risk that in turn
customers. Can be overnight loans. affects the rate of return that must be paid on
borrowed funds
Roles of Money Market
1. Helps provides liquidity to the market Credit Risk Credit Rating Description
2. Money market investors are extending credit, without
Investment
assuming ownership roles
Grade
3. A well functioning money market facilitates the
development of a market for longer-term securities. Highest
AAA Extremely strong capacity
4. The interest rate for short-term use of money serve as Quality
benchmarks for longer-term financial instruments High Quality AA Very strong capacity
5. Issuers of money market, unlike bonds, are more Upper
concerned with cash management or short-term medium A Still strong
financing grade
Medium
BBB Has adequate protection
Grade
Below
Investment
Grade
Somewhat Exposure to adverse
BB
speculative conditions
Adverse situations impairs
Speculative B
capacity
Highly
CCC Vulnerable to non-payment
speculative
Most Highly vulnerable to non-
CC
Capital Market speculative payment
• Trading happens in either the primary market or Imminent Filed bankruptcy but still
C
secondary market default paying
• Generally can be pure, hybrid or derivatives Obligations are in
• Pure are the basic instruments like equity shares, Default D
default/jeopardized
preferred shares, bonds and debentures
• Hybrid are the instrument with mixed Types of Bonds
characteristics like convertible bonds or Unsecured long-term bonds
convertible shares – Unsubordinated Debentures - backed only by the
• Derivatives derive their value from underlying reputation and financial stability of the firm
assets such as futures forwards, options, swaps – Subordinated debentures – claims of this type are
honored after the claims of secured and
Bonds unsubordinated debentures have been satisfied
o Bonds is any long term promissory note issued by – Income bonds - requires interest payment only if
the firm earned and non-payment of interest does not
o Bond Certificate is the tangible evidence of a lead to bankruptcy. Unpaid interest is
debt issued by firms or the government to an accumulated for some time and must be paid
investor prior to dividend distribution.
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Secured long-term bonds Issuance of Preferred Shares
– Mortgage bonds – bond secured by a lien or o The issuance of preferred shares is favored when
property. There is a safety net for investors the following conditions prevail:
1. Control problem exists with the issuance of
Floating Rate or Variable Rate Bonds common shares
– The interest payment changes with the market 2. Profit margins are adequate to make the
conditions additional leverage attractive
3. Additional debt poses substantial risk
Junk or Low-rated bonds 4. Interest rates are low, lowering the cost of
– Bonds rated BB or below. Could be a viable preferred shares
financing alternative for firms without established 5. The firm has a high debt ratio, suggesting
performance infusion of equity financing is highly needed

Eurobonds Comparison among the capital investments

– Bonds payable or denominated in the borrower’s Common Preferred Bonds
currency and is sold outside the country of the Stocks
borrower a. Participatio Limited Limited
Ownership n in rights when rights under
Treasury Bonds and ownership dividends default in
– Issued by the government and considers among control of through are missed interest
the safest fixed-income securities the firm voting rights payment
and
Ordinary Equity Shares (Common Stock) residual
o It is a form of long-term equity that represents income
ownership interest of the firm b. None Must Bound by
o The shareholders are called residual owners Obligation receive contract
because their claim to earnings and assets is the to provide payment
remainder after satisfying the claims of the return before
creditors and preferred stockholders common
o They are the true owners of the firm and bear the stock
ultimate risk and the rewards of ownership c. Claims Lowest Bondholder Highest
o They also have limited liability because their risk of to assets in claim s and claim
potential loss is limited to their investment in the bankruptc creditors
equity shares y must be
o They have voting rights satisfied first
d. Risk- Highest risk, Moderate Lowest risk,
Collective and Individual rights of Ordinary Equity return highest risk, moderate
Shareholders trade off return moderate return
- Right to vote on specific issues such as election of return
the board of directors, selecting the independent e. Tax A portion of Same as Governmen
auditor, increasing the amount of authorized status of dividend ordinary t bond
stock, amending the articles of incorporation and payment paid to shares interest is
bylaws and so forth to another tax exempt
- Right to receive dividends if declared by the firm’s recipient corporation
board of directors is tax
- Right to share in the residual assets of the firm in exempt
the event of liquidation
- Right to examine the corporate banks
- They have preemptive rights. It is the right to buy
additional shares in any future issue of the
company's common stock before the shares are
available to the general public.

Preferred Stocks
o It is a class of equity shares which has preference
over common shares in the payment of dividends
and in the distribution of company assets in the
event of liquidation
o They don’t have voting rights
o Examples are
- First Philippine Holding – Preferred
- San Miguel Purefoods – Preferred
- Petron Corporation Perpetual – Preferred
- Swift Foods, Inc. – Convertible Preferred
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