BUSS FI ENDTERM Flashcards
” This quote from the musical
Kismet i
Princes come and princes go
exceptionally apropos of finance.
musical Kismet
also referred to as a stockholder
shareholder
is a person, company, or institution that owns at least one
share of a company’s stock,
equity
encouraged to develop a longer
perspective for the company that they manage.
Management
links the savers and the users of funds.
Financial system
Financial system components
Financial institution, Financial Markets, Financial Instruments, Financial Services, Currency(money)
can come from households, individuals, companies,
government agencies or any other entity whose cash
inflows are greater than their cash outflows.
Savings
provide mechanism where savers can put their
excess funds through deposits.
Banks
give depositors
interest on the money deposited to them.
Banks
can also invest in financial instruments like
governments securities and corporate bonds.
Banks
offer different products.
Insurance Companies
can be broadly categorized into life insurance
products and non-life insurance products
Insurance products
protect the insured from the loss
of life while non-life insurance products protect the
insured from the loss of or damage to properties.
Life insurance products
provides a system for
the trading of equity securities of publicly listed
companies.
The Philippine Stock Exchange (PSE)
Investing in the stock market must be coursed through
stock brokerage firms
one can trade in the stock market
through the Internet.
Online brokers
2 of the online brokers in the Philippines.
COL Financial
BPI Trade
provide opportunities for big and small
investors to invest in financial instruments which they
would not have considered on their own, or they may have
considered but do not have the time and expertise to do it.
Mutual Funds
Financial Instruments are generally classified into two
major categories:
Equity securities and debt securities.
has a priority over a common stock in
terms of claims over the assets of a company.
Preferred stock
have priority over common
stockholders in cash dividend declaration.
Preferred Stockholders
the real owners of the company.
Common stockholders
are financial assets that entitle their owners to
a stream of interest payments.
Debt securities
a type of financial asset that is created when
one party lends money to another.
Debt securities
Investors lend money to the government in return for interest payments
Coupon Payments
are also known as fixed-income securities
because they generate a fixed stream of income from their
interest payments.
Debt Securities
an upper-level executive who
oversees all financial matters for an organization, from making
sure payroll is finished on time to analyzing market trends.
The vice president of finance
The most important financial statement account in
forecasting
Sales
a schedule which provides information
regarding the number of units that should be produced over a
given accounting period based on expected sales and targeted
level of ending inventories.
Production Budget
Required production in units
Expected Sales + Target Ending
Inventories – Beginning Inventories
three types of working capital financing policies
management
- Maturity-matching working capital financing policy
- Aggressive working capital financing policy
- Conservative working capital financing policy
include long-term debt and equity such as
common stocks and preferred stocks
Long-term
sources of financing
Short-term sources include
short-term loans from a bank. These short-term loans from banks
are called
working capital loans
can bring crystal clarity to the concept
diagram
3 levels of diagram
fixed assets, permanent working
capital, and temporary working capital.
a risk-free strategy of working capital
financing.
Conservative approach
the most liquid asset of a company but is also the most
vulnerable to theft
Cash
A basic internal control system should not allow the assignment
of custodial function and recording function to one person unless
you are the owner
Separating cashiering function from the recording or
accounting function.
It is important to know the collections from business every day as
these collections reflect the health of the company
Issuing official receipts for collections and summarizing collections
in a daily collection report.
A good internal control over cash is by
depositing the collections intact
Depositing collections.
If all collections
need to be deposited, then payments must be made through a
check voucher system
Adopting the check voucher system for payments
shows the expected cash
receipts and disbursements for an accounting period.
cash budget
It can be prepared
on a monthly or a quarterly basis for a year.
cash budget
This includes collections from receivables,
proceeds from loans, or issuance of new shares of stocks and
advances from stockholders
Cash Receipts
This section includes payments to
suppliers and other service providers, payments for loans and
cash dividends.
Cash disbursement
This
provides information regarding the amount of excess cash or
cash deficit for the period
Net cash flow for the period
This is computed by deducting
cash disbursements from the collections for the period.
Net cash flow for the period.
No business can operate without cash.
Target cash balance.
the amount of cash that
management wants to always maintain given its present level
of operations, stability of cash flows, and the macroeconomic
and political conditions.
Target cash balance.
This is the
most important part of the cash budget where the possible
funding requirements are shown on a cumulative basis.
Cumulative excess cash or funding requirements.
This
part of the cash budget is very important in planning because
if the management can estimate the amount of cash they will
need in the future and when it will possibly arise, this early,
management can identify the possible sources of cash.
Cumulative excess cash or funding requirements.
Summarizes the amount of cash and cash equivalents entering and leaving a company
Statement of Cash Flows
Measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses
Statement of Cash Flows
is prepared after taking into consideration the effects of the adjusting entries.
Preparing adjusted trial balance
The 5 Profitability Ratios
Return on Equity (ROE)
Return on Assets (ROA)
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
5 Major sources of Risk
Business risk
Financial risk
Liquidity risk
Exchange rate risk
Country risk
Interest Coverage Ratio =
Operating Income ÷ Interest Expense
Debt to Equity Ratio =
Total Liabilities ÷ Total Stockholders’ Equity
show the capital structure of the company, that is, how much of the total assets of a company is financed by debt and how much is financed by stockholder’s equity.
Leverage ratios
Debt Ratio =
Total Liabilities ÷ Total Assets
can also be used to measure the company’s ability to meet long term obligations.
leverage ratios
Quick Asset Ratio =
(Cash + Trade Receivables) ÷ Current Liabilities
Current Ratio =
Current Assets ÷ Current Liabilities
Two commonly used liquidity ratios:
the current ratio and the acid test ratio or sometimes called quick asset ratio.
measure the ability of a company to pay its maturing obligations from its current assets.
Liquidity ratios
Net Profit Margin =
(Net income ÷ Sales) x 100%
Operating Profit Margin =
(Operating Income ÷ Sales) x 100%
Gross Profit Margin =
(Gross Profit ÷ Sales) x 100%
ROA =
(Operating Income ÷ Total Assets) x 100%
ROE =
(Net income ÷ Stockholders’ Equity) x 100%
need to determine the bank’s overall financial position and performance before transacting with them.
Depositors
The major deposit instruments
Savings account
Checking account
Time deposit account
The lesson that you have learned about investing…..
As I delve into the world of investment, I have learned about various key concepts and strategies that can help make me more knowledgeable about investing. Investing in various assets, such as stocks, bonds, and real estate, can help mitigate risk and maximize returns.
Additionally, I have learned about the significance of conducting thorough research before making any investment decisions. This involves analyzing financial statements, studying market trends, and understanding the company’s competitive advantage. By doing so, I can identify potential opportunities and avoid making impulsive or uninformed choices.
What financial intermediaries are also in charge of managing individual savings while it receives a premium payment placed in loans or investments in order to accumulate funds to cover future benefits?
Life insurance company
What type of financing is being referred when a company uses retained earnings to finance new projects or investments?
Internal Financing
most closely associated with evaluating a company’s ability to generate shareholder wealth over time?
ROE
According to the Pecking Order Theory, which of the following indicates how a firm finance its investments
The order in which it considers financing options
Which of the following is not a characteristic of preferred stock?
Lower priority in the event of liquidation
What does the yield on a bond represent?
the percentage return that an investor can expect to earn over the life of the bond.
Hello Corp has current assets of P300,000 and current liabilities of P250,000. What is the BEST strategy for Hello Corp to raise its working capital?
Refinancing of P50,000 of short-term debt with long-term debt
