basic finance part1

1. First Semester, A.Y. 2018 - 2019
BA4 - BASIC FINANCE
P re p a re d by
m mv i d a n e s 2 9 @ g m a i l . co m

2. NATURE AND AIMS OF BUSINESS
 BUSINESS
 (Miranda) - defined as “any lawful economic activity
which is concerned with making goods available as
well as the rendering of useful services to those who
want them.”
 (Ignacio) – it is “all effort preliminary concerned with
providing for the interested publics legitimate needs ,
at the required time and place , at an equitable price
and with reasonable return is compensate the
businessman for his effort and risks.”

3.  (Oxenfelds) – described as “involves providing
and selling a product or services with the aim of
obtaining reward for the private owners.”
 Any lawful activity concerned with the
production or distribution of goods or services
for profit.

4.  Kinds of Business
 Commerce – business firms which are engaged in
the buying and selling of goods and services. Also
included are trading, merchandising, and
marketing.
Ex. Supermarkets, dry goods store, peddlers, sari-sari
stores, importers and many others.

5.  Service– is one which sells service to the buyer.
Classification of Service Firms
Recreation – movie houses, televisions and
radio stations, theaters, for drama and stage
presentation etc.
Personal – restaurants, barbershops,
transportation, hotels, etc.
Finance – banks, insurance companies, credit
unions, savings and loans associations, etc.

6.  Industry – are those which are mainly concerned
with production. Goods produced are those
which maybe intended for ultimate consumption
and which are called consumer’s good or those
which are intended for use of business and
industry and which are called producers goods.

7. Classification of the Industry
Genetic Industries – are those involved in
agriculture, forestry and fish culture.
Extractive Industries – are involved in the
extraction of good from natural resources
which include mining, lumbering, hunting
and fishing.

8. Manufacturing Industries – are those which
convert raw materials into finished products.
Ex. Drugs, plastics, foods liquors, footwear, motors,
cars, tools, office supplies, household appliances and
many others.
Construction Industries – consists of firms
engaged in building infrastructures like
airports, seaports, dams and highways.

9. Two Kinds of Persons involved in Business World
Directly involved – those are the
investors and the workers who
encounter activity in the business world.
Indirectly involved – those are the
consumers of final consumers.

10.  Classification of Business
 According to Function
service business
manufacturing Business
merchandising business
 As to goods Produce
Consumers’ goods – goods produced used by final
consumer.
Producers’ goods – used by producers/business to
produce more goods.

11. According to life of Product
Non-durable goods - product relatively
short lifetime, they can be used for few
times.
Durable goods – used for many times
and for lifetime.
• Ex. furniture, metal products, automobiles and
others.

12. NATURE AND AIMS OF BUSINESS
 BUSINESS FIRM
 An important unit of a business. It manifests itself in
the form of financially responsible business
organization with established place of business owned
by one or more persons and subject to a single set of
operating policies.(by Miranda)

13. Reasons for People to Enter into a Business
 Profit
 Personal Satisfaction
 Protection
 Power
 Livelihood
 Social Approval /Prestige
 Service to the Community

14. Factors Affecting the Choice of a Business
 Availability of Funds
 Special Aptitude and Interest
 Training, Education and Experience
 Social Status of the Businesses
 The Competitive Situation
 Location

15. NATURE AND AIMS OF BUSINESS
 FINANCE
 The science of managing money, on either a public or
private scale.
Categories of Finance
➢ Public Finance – deals with the revenue and expenditure
patterns of the government and its impact
on the economy.
➢ Private Finance – deals with an area of general finance not
classified under public finance.
Subdivision:
1. Personal Finance
2. Finance of non-profit organization
3. Business Finance

16. FINANCE
Public Finance Private Finance
Personal Finance
Finance of non-
profit organization
Business Finance

17. https://www.youtube.com/user/FIN205

18. NATURE AND AIMS OF BUSINESS
 BASIC FINANCE
branch of study concerned of the allocation,
procurement of efficient management of
business capital so that a firm can maximize
profit, increase its value and fulfill its social
role.
provision of money for commercial use of funds.
concerned with the effective use of funds.

19. defined as the procurement and
administration of fund with the view of
achieving the objectives of the business.
It involves techniques of estimating of
acquiring adequate capital from alternative
sources at the best possible terms for the
users and their most profitable employment
in business operation.

20. Goals of Business Finance
Maximizing profit – realizing the highest
possible peso. (The ability for company to achieve a
maximum profit with low operating expenses.)
Maximizing profitability – when a firm decide
on obtaining a higher rate of return on its own
investment. (According to the risk-return tradeoff, invested
money can render higher profits only if the investor is willing
to accept the possibility of losses)

21.  Maximizing profit subjects to a cash constraint –
maintaining to maximize profits, while at the same
time maintaining a cash balance that will satisfy both
requirements.
 Maximizing net present worth– objective of the firm is
to maximize the current value of the company to its
stockholders.
• Net present worth – is equal to the value NOW of the firm
including values arising in the FUTURE.
 Seeking at optimum position along a risk-return
frontier.

22.  Major Function of Business Finance
 Allocation of an adequate supply of capital for business
needs, both short-term capital financing:
FUNDS – refer to the means of payment whether in
cash or credit, for goods and services.
 Firm’s financial needs maybe classified into:
• Long-term capital financing – to support expansion
expenditure where payback period takes several years.
Example: buildings, land
• Short-term capital financing – to provide for which with
investment flow back within one year or less.