BUSINESS FINANCE

As ABM students we dont need to be a

hyper-intellectual human being like
Jimmy Neutron
We dont agree with Jessie Janes Price
Tag because ABM is all about MONEY!
OBJECTIVES:
Define business finance
Be familiar with the role of business
finance
Know the importance of consideration
of risks in financial decision making
Know the relationship of business
finance in other disciplines particularly
accounting.
 BUSINESS FINANCE
The study of financing and investment
decisions made from theory to practice.
Making of decisions about which
investment the business should make.
Management of money an other valuable
assets.
You need to be familiar with accounting method,
investing strategies and debt management.
 ROLE OF BUSINESS
FINANCE
FINANCING: The act of brining money into the
organization
Bus. Fin. Will help us in financing and investment
decision.
Methods of financing are:
a. taking on debt
b. credit arrangements
c. investments on real assets and financial
assets.
The success and failure of business rely on thins
discipline.
 BUS. FIN. AND ACCTNG.
ACCOUNTANT is concerned with financial
record keeping, production or periodic
report, statement and analysis.
FINANCIAL MANAGER only makes
decision involving finance and not to
provide financial information.

In a small business, an accountant and financial

manager can be one person.
 FINANCIAL MANAGEMENT
Itstarts with a plan
Having cash and resources is not enough
Financial management in business is a must.
FINANCIAL MANAGEMENT:
Deals with decision that supposed to maximize the
value of shareholders wealth (shares of stocks)
Planning, controlling, directing the financial
activities such activities such as procurement and
utilizations of funds.
Stocks forms of ownership in a corp.
 SCOPE OF FINANCIAL
MANAGEMENT
1. INVESTMENT DECISION: Investment on fixed
assets (capital budgeting decision) and current
assets (working capital decision)
2. FINANCIAL DECISION: Raising of finance from
various resources
3. DIVIDEND DECISION: Decision on net profits
distribution which are;
a. dividend for shareholders
b. retained profits
 OBJECTIVES OF FINANCIAL
MANAGEMENT
1. Ensures regular and adequate supply of funds.
2. Ensures adequate returns of shareholders.
3. Ensures optimum fund utilization.
4. Ensures safety of investments to achieve
adequate rate of returns.
5. Plan a sound capital structure so that balance
between debt to equity capital will be
maintained.
 FUNCTION OF FINANCIAL
MANAGEMENT
1. Estimation of capital requirements
such as expected cost and profits, future
programs and policies to ensure increase in
earning capacity.
2. Determination of capital composition
after estimation, capital structure should be
decided, it involves short-term and long-term
debt equity (D/E) analysis.
 Debt / Equity Analysis
Under the solvency financial ratio
measures the amount of debt a company uses to fund
its business. (also called leveraging/risk/gearing)
Ex. Total shares value = P180,000 and
Total Liabilities = P620,000
D/E ratio = 344.44% (high risk)
What if: Total shares value = P620,000 and
Total Liabilities = P180,000
D/E ratio = 29.03% (low risk)
 The higher the ratio is, the more debt a business
uses compared to equity

A ratio that is too high can potentially cause

problems in your small business.

The risk of defaulting on, or being unable to repay,

your debt increases as your debt-to-equity ratio rises

If you fail to make interest payments, creditors might

take your companys assets or force you into
bankruptcy
 FUNCN. OF FIN. MGMT. (cont.)
3. Choice on the sources of funds
a. Issue of shares and debentures (type of
bond or debt instrument like T-bills that is not secured
by physical asset or collateral, back up only by credit
worthiness and reputation of the issuer, free risks)
b. loans from banks and financial inst.
c. public deposits from bonds.
4. Investment of funds allocating funds to
profitable ventures for safety investments and regular
returns.
5. Disposal of surplus or net profit disposal,
done through
a. Dividend declaration
b. Retained profits for expansion,
innovation and diversification plan.
6. Management of cash for administrative and
distributive cost.
7. Financial Control not only procure, plan and
utilize funds but also controls finances through
ratio analysis, financial forecasting, cost profit
control etc.
 BEWARE OF LITTLE EXPENSES, A
SMALL LEAK WILL SINK A GREAT
SHIP

Activity:
Write everything youve learn through a
mind map.