INTRO TO FINANCE

AREAS OF FINANCIAL ENVIRONMENT

TERMS TO REMEMBER
Organizations that help the
Finance
Financial financial system operate
Science and Art of Managing Institutions and efficiently and transfer funds
money (Gitman & Zutter, 2012)
Market from depositors to investors to
individual assets.
Study on how the players in a
financial system acquire, spend, Focuses on decisions made by
manage, and make other business and individuals as
Investments
financial decisions concerning they choose securities for their
money.
investment portfolio.

The strategic planning,

Money
Financial organizing, directing, and
Anything generally accepted as a Management controlling of financial
means of paying for goods and undertakings in an organization.
services

For paying off debts or liabilities

FINANCIAL INSTITUTIONS

FUNCTIONS OF MONEY Supervised and regulated by

the BSP

Intermediary instrument or Banks Universal, Commercial,

Medium of system used to facilitate the sale, Thrift, Savings, Rural, and
Exchange purchase or trade of goods Cooperative Banks
between parties
Supervised and regulated by
Function of an asset that can be Insurance
the BSP

Store of Value saved, retrieved, and Companies

Long term plans
exchanged at a later time
Lending Make loan available for
An agreed-upon worth for a Institutions individuals and businesses
Standard of transaction in a country’s
Value medium of exchange, such as
the Philippine peso Financial Instrument

Any contract that gives rise to a

Why study Finance? financial asset of one entity and a
a financial liability or equity
instrument of another entity

Economics underscores that

Manage money
resource is something that is
or financial ELEMENTS OF FINANCIAL MANAGEMENT
scarce and have to be managed
resources
properly to maximize their use
Process of calculating the
Decisions being made by Financial amount of capital needed by an
individuals, business, and Planning organization and determining its
Make sound government affect the entire allocation.
decisions economy. Due to this, they must
make decisions that increase the Role is to assess whether an
Financial

value of their stakeholders organization is meeting its

Control
objectives or not.
Understand the
career path Knowing finance entails knowing This department takes decisions
Financial
available to as well the job opportunities and financing with regards to
Decision-Making
finance available to finance professionals the organization.
professionals

CHLOE TAAL // 12 ABM

BUSINESS FINANCE REVIEWER
 TYPES OF RATIO ANALYSIS
FORMULAS AND DEFINITION

LIQUIDITY RATIO SOLVENCY RATIO

Ability to meet Ability to pay

Current Current Assets
Debt Total Liabilities

–––––––––––––––––
short term –––––––––––––––––
off its liabilities
Ratio Current Liabilities Ratio Total Assets
obligations with its assets

Same purpose, How leveraged

Cash + Marketable Equity Total Equity

Quick but tougher –––––––––––––––––

the company is
Securities + Ratio Total Assets
Ration
Receivables
measure as with debt
(Acid Test) –––––––––––––––––
inventory is
Current Liabilities Same purpose
excluded Debt to
Total Liabilities
using
Equity –––––––––––––––––

Same purpose Total Equity extremely

Cash + Marketable Ratio
Cash Securities
using liquid assets
Ratio –––––––––––––––––
extremely
Current Liabilities liquid assets
ACTIVITY RATIO

PROFITABILITY RATIO Ability to use

Asset Sales

–––––––––––––––––
company’s
Turnover Ave. Assets
Portion of a assets
company’s
Earnings Net Income
Accounts Credit Sales

–––––––––––––––––
profit that is –––––––––––––––––
efficiency of a
per Share Total Outstanding Receivable Ave. Accounts
Shares allocated to company
(EPS) Turnover Receivables
outstanding
shares Ave. 360

–––––––––––––––––
Measures the
Collection
Percentage of Accounts Receivable ave. days
Period Turnover
Gross company’s
Sales - Cost of

Profit Goods Sold

revenue Speed in which
Margin ––––––––––– x 100
after Accounts Purchases

Sales –––––––––––––––––
the company
(GPM) deducting Payable Ave. Accounts pays debts to
sold goods Turnover Payable suppliers
Percentage of 360

Ave.
company’s –––––––––––––––––
Number of days
Payment

Net Profit revenue Accounts Payable to settle debts

Net Income
Period Turnover
Margin ––––––––––– x 100
after costs
(NPM) Sales have been Inventory Cost of Sales
Ability to sell
taken into –––––––––––––––––

Turnover Ave. Inventory its inventory

account
Number of
Measurement Ave. 360

Return of Net Income

days for an
of Inventory
–––––––––––––––––

Assets ––––––––––– x 100

Inventory Turnover inventory to be
Ave. Total
Period
management sold
(ROA) Assets
performance

Another
Return of Net Income
measurement
Equity ––––––––––– x 100
of
Ave. Total

(ROE) Equity management

performance

CHLOE TAAL // 12 ABM

BUSINESS FINANCE REVIEWER