Business Finance Flashcards
The four functions of a VP for finance (CFO)are as follows
Financing
Investing
Operating
Dividend policies
Financing decision
(Day by day operation of the company)
Financing decision include making decisions on how to fund long term investments and working capital which deals with a day by day operation of the company
Investments
Investing is where you put your access cash to make it more profitable
Short term investment
Decisions is needed when the company is an excess cash position.
Long term investment
Should be supported by a capital budgeting analysis which is among responsibilities of a finance manager.
Operating decisions (receivable and inventories)
Deal with the daily operation of the company. The role of the VP For finance is to determine how to finance to finance working capital accounts such as accounts receivable and inventories
Short term sources (will be payble in at most 12 months)
Are those that will be payable in at most 12 months. is generally lower compared to that long term loans
Long term sources
On the other hand mature in longer periods since this will be paid much later the lender expect more risk and place a higher interest rate which makes the cost of a long term sources sources higher than short term sources
Dividend policies
Cash dividends are paid by the corporations to existing shareholdings in the company as a return on their investment
Finance (science)
Fiance can be defined as the science and art of managing money
Finance decisions
How and where to will use money
Budgeting (period of time)
Budgeting is the act of estimating revenue and expenses over a period of time
Source of funds
the origin of the particular funds or any other monetary instrument which are the subject of the transaction between a Financial Institution and the customer
Financial System(lendader and the borrower)
The financial system is an organized and regulated structure where an exchange of funds takes place between the lender and the borrower.
Financial system
This is diagram of a financial system the solid lines represent of the flow of cash/funds while the broken lines present the flow of financial instruments which represent obligation to transfer cash or other asset in the future
Financial Market
Are organized forums in which the suppliers and users of various types of funds can make transactions directly.
Private Placements
Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Generally, these investors include friends and family, accredited investors, and institutional investors.
Types of financial market
Primary markets
Secondary markets
Capital markets
Money makets
Primary markets
Primary markets are markets in which users of funds (e.g corporations) raise funds through new issues of financial instruments such as stocks and bonds
Secondary markets
Secondary markets are like used cor markets secondary market are markets for currently outstanding securities reffered to as secondary SecurIties
Capital markets
Capital markets on the other hand are markets for long term securities long term securities are either debt securities or equity securities (stocks)
Money markets
Money markets cover markets for short term debt instrument usually issued by companies with high credit standing they consist of a network of institution and facilities for trading debt securities with one year or less maturity
Financial Institutions
If the two companies do not want to make an effort to find counterpart in the Financial Markets, they may go to a Financial Institution.
Examples of financial institutions
Commercial banks
Insurance banks
Commercial Banks
Individuals deposit funds at commercial banks, which use the deposited funds to provide commercial loans to firms and personal loans to individuals, and purchase debt securities issued by firms or government agencies.
Insurance Companies
Individuals purchase insurance (life, property and casualty, and health) protection with insurance premiums. The insurance companies pool these payments and invest the proceeds in various securities until the funds are needed to pay off claims by policyholders.
Examples of financial institutions
Mutual funds
Pension funds
Mutual Funds
Mutual funds are owned by investment companies which enable small investors to enjoy the benefits of investing in a diversified portfolio of
Pension Funds
these are financial institutions that receive payments from employees and invest the proceeds on their behalf.
Banko sentral ng pilipinas
The bsp is responsible for overseing the country monetary system and policies controlling the money supplies
Financial instrumets
Debt instrument
Equity instrument
Debt instrument
Generally have fixed returns due to fixed interest rates
Equity instrument
Generally have varied returns based on the performance of the issuing company returns from equity instrument come from either dividends or stock price appreciation
Preferred Stock
has priority over a common stock in terms of claims over the assets of a company.
Common stocks
on the other hand are the real owners of the company.
6 steps of financial planning process
1.determine your current financial situation
2.develop financial goals
3.identify cources of actions
4.evaluate alternative
5.create and implement a financial action plan
6.re evaluate and revise your plan
Criteria for effective planning
Specific
Measurable
Assignable
Realistic
Time related
Forecasted unit sales x price per unit
Total gross sales
Strategic plans
Long-term financial plans or the strategic plans are a set of goals that lay out the overall direction of the company. A long-term financial plan is an integrated strategy that takes into or make it more than 1 years
Tactical Plans
Short-term financial plans or the tactical plans specify short-term financial actions and the anticipated impact of those actions. More than 12 months or even 1 year
Examples of debt instrument
Treasury Bonds and Treasury Bills
Corporate Bonds
