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1. introduction to business finance

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This ppt defines business finance, become
familiar with the role of business finance and knowing the important consideration of risks in financial decision making.
Know the relationship of business finance in other disciplines particularly accounting.

Published in: Business
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1. introduction to business finance

  1. 1. BUSINESS FINANCE As ABM students we don’t need to be a hyper-intellectual human being like Jimmy Neutron We don’t agree with Jessie Jane’s Price Tag because ABM is all about MONEY!
  2. 2. 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.
  3. 3. 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.
  4. 4. 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.
  5. 5. 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.
  6. 6. FINANCIAL MANAGEMENT  It starts 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.
  7. 7. 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
  8. 8. 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.
  9. 9. 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.
  10. 10. 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)
  11. 11. • 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 company’s assets or force you into bankruptcy
  12. 12. FUNC’N. 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.
  13. 13. 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.
  14. 14. “BEWARE OF LITTLE EXPENSES, A SMALL LEAK WILL SINK A GREAT SHIP” Activity: Write everything you’ve learn through a mind map.

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