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Basic Concepts profits, payroll, and other complicated activities in Price determination. To ensure you can operate
running your business. your business and produce enough cash flow to
 Regardless of your career and status in life, It is used by commercial enterprises to record and invest into your enterprise, you must be able to price
business math is essential knowledge to your product enough to make your business
manage business operations.  Commercial
help you manage your finances. Knowledge organizations use mathematics in accounting, profitable.  After determining the costs, the next task
of business math will provide you with is to price the products correctly so that it generates
inventory management, marketing, sales forecasting,
better choices and decisions in your and financial analysis.  the right amount of cash flows for future
everyday life. requirements of the business. Accurate
It helps you understand the determination of price would ensure that the product
 Decisions happen on a daily basis (both financial formulas, fractions, and measurements remains profitable.
professional and personal) and these involved in interest calculation, hiring
situations can be effectively solved and Profit measurement. These require determining the
rates, salary calculation,
decided upon with the help of mathematical and tax calculation among others.  net profit during a period of time including items
models. Thus, business math helps you not such as tax, depreciation and discount expenses. 
only to calculate but also to analyze Business math also includes statistics and provides This is important to find out if the products are
business problems and act upon them. solution interrelaten to business problems and being priced enough to continue the business
facilitate data presentation. operations and facilitate its expansion.
 Learning and using business mathematics
equips you to think outside the box which in Owning and/or managing a business requires more Financial Analysis. In business, there is a need to
effect will sharpen your thinking and helps skills on top of developing a product or providing a project revenues and expenses to analyze its
in accurately formulating, integrating and service. If a business has to survive and succeed, it financial health and sustainability.  There is a need
structuring relationships. This in turn will needs to look after the finances and make necessary to do sensitivity analysis to determine how an
enhance your decision-making skills. The arrangements for its sustainability.  An increase or decrease in sales or pricing could affect
use of business mathematics facilitates understanding of business mathematics becomes the business. It will also help you determine if you
important decisions based on numerical and essential to maintain profitable operations and can afford to expand your operations to improve
measurable inputs and not on personal accurate keeping of records. sales.
belief and opinions. Business operations where business mathematics is
required: Mathematical Skills Needed for
 What is Business Math and Why? Business Math
Production costs calculation. Before one starts
Business Math - type of mathematics that is meant production and establishes its business, it is very
A strong understanding of the following is needed to
to teach people about money and provide them with important to estimate the costs that would be
help you go through the subject:
the tools they need to make informed financial incurred in relation to the manufacturing such as the
decisions. It does not only teach about the specifics cost of raw materials, machinery, rent, Integers - comfortable reading, writing, and making
of finances related to owning and operating a administrative expenses, etc.   In addition to these estimates for whole numbers; be able to add,
business but also offers helpful advice and basic expenses there are also other associated costs subtract, multiply, and divide any integers (using a
information related to their own personal finances. such as marketing, warehousing, interest and calculator, if needed).
repayment of loans, etc.  Accurate determination of
Business - involves managing goods and services to Fractions, Decimals, and Percentages - to add,
the costs associated with the business will make a
make a profit, understanding business math will subtract, multiply, and divide functions, simplifying
strong base for business operations.
teach you how to manage discounts, markups, as needed; be able to calculate percentages; and be
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able to convert between fractions, decimals, and planning for savings goals, you must acquire a solid Banks that are considered depository institutions.
percentages. foundation in mathematics. Non-bank financial institutions which
Basic Algebra - able to solve equations with one or The financial environment encompasses systems, are considered contractual savings
more variables; be able to calculate proportions; and institutions, markets, and individuals that make the organizations such as insurance and pre-need
be able to solve multi-operational equations. economy operate efficiently. companies.
Formulas - able to correctly apply values and The areas in finance are all part of the financial Financial markets are forums in which the supplier
variables to any given formula (e.g. when given the environment and these areas do not operate in and demanders of funds transact directly.
formula for calculating simple interest, I = PRT – be isolation but interact or intersect with each other. Financial markets include both the money market
able to input the correct values for P = principal, R = In any financial environment there are suppliers and and capital market. Both markets facilitate the
interest rate, and T = time in years to solve for I – demanders of funds. The key suppliers and transfer of financial assets.
interest). demanders of funds are individuals, businesses, Financial institutions actively participate in the
Statistics - able to solve for the mean, median and and governments. financial markets as both suppliers and demanders
mode of a data set; and be able to interpret and In general, individuals are net suppliers of funds, of funds. Clearly, both financial institutions and
understand the significance of the mean, median, while businesses and governments are net markets interrelate and intersect within the financial
and mode. demanders of funds.
Graphing - able to interpret different types of Net suppliers are those who save more than borrow
graphs and charts such as bar and line graphs, while net demanders are those who borrow more
scatter plots, and pie charts to understand the than save.
relationships between different variables.
The financial
  environment
The complexity of financial transactions in the in diagram is
financial environment has always been a concern as follows:
among individuals and businesses.  Yet, we have
persistently tried to understand the nature of these
intricacies by studying the connections among the
environment.  Their relationship is shown as follows
different embodying systems no matter how
complicated it is. Sole Proprietorship/Single Proprietorship
  The Financial System  This is type of business with a single owner
The financial system is a network of various or owned by one person who operates it for
Business Math and the Financial his or her own profit. Given this, there is no
institutions that generate, circulate, and control
Environment money and credit. legal distinction between the business and
the owner.
Finance happens to be one of the most quantitative Financial institutions are intermediaries that
fields and to learn essential skills such as analyzing channel the savings of individuals, businesses, and o In other words, the business is the
and assessing investment performance and financial governments into loans or investments. owner’s personal property – the
business exists only as the owner
Financial institutions include –
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lives and wants to operate it. between the business and its business is managed as well as the
Needless to say, all the assets of the owners/partners. relationship between each partner.
business also belong to the owner.  Each of the partners can execute contracts  Relative to single proprietorship, both enjoy
o Consequently, the owner shoulders that are binding, and each would be liable the benefits of tax and ease of formation.
personal liability for all the for all the partnership’s debts.  This sharing However, unlike a proprietorship, a
business’s debts and pays income of legal responsibility is known as joint and partnership allows a large number of people
taxes as the owner’s earnings (pays several liabilities. to combine their expertise and resources to
taxes only once). form a larger enterprise; it enjoys more
 Single proprietorship is one of the most flexibility, and the business need not
popular forms of business because of its automatically terminate following the
simplicity and ease of operation. However, retirement or death of one partner.
there are weaknesses to mention for this  Yet, there are also downsides of a
type of organization as follows: partnership which is very similar to single
o Limited life. A proprietorship is proprietorships, as follows:
usually terminated when the single o Limited life. The life of a
owner retires or dies. partnership can be limited,
o Limited access to capital. A specifically if only a few partners
proprietor can obtain operating are involved.  Problems may also
capital only from two sources:  result from the instability of the
reinvested profits and personal partnership in the long-term.
borrowing by the owner.  In reality, o Limited access to capital. In terms
both of these can be easily of operating capital, the firm is still
consumed. limited to retained profits and
o Unlimited personal liability. A personal borrowings of each of the
single proprietor is personally liable partners.
for all the debts of the business and o Unlimited personal liability. The
claims of the business could be partners are subject to joint and
extended to the proprietor’s   several liability.
personal assets.
 Partners formalize the terms of their Corporations
Partnerships partnership in a written Partnership
Agreement or Articles of Partnership.  A corporation is an entity created by law,
 A partnership has two or more owners doing Although this is not a requirement, most owned by shareholders/stockholders who
business together for a profit. The partners partnerships create such a document.  hold its common stock or preferred stock
are expected to combine their skills and (equity) and enjoy many economic rights
o A partnership agreement is a legal and responsibilities.
their personal wealth.  Similar to
proprietorship, there is no legal distinction document that prescribes the way a
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o A corporation can sue and be sued; o Common stockholders carry voting new board member voted in
can be tried and convicted for rights and normally vote at an whenever conflict arises.
crimes; enter into and be a party to annual meeting to elect the firm’s  Yet, it is also possible for
contracts; and acquire properties directors. an individual to serve as
under its name.  The directors of a corporation include key CEO and chairman of the
 There are several advantages of corporate personnel as well as outsiders board at the same time.
corporations versus the other forms of who are typically successful private However, control policies
business organization, as follows: businesspeople or executives of other major considers this to be a bad
o Unlimited life. When created, a corporations. situation when both offices
corporation has a perpetual life o Directors are responsible for hiring and positions are vested in
unless overtly terminated. and firing key personnel (managers the same person.
and executive) and setting corporate o Normally, the board requires
o Limited liability. The
shareholders/stockholders of a policies. regular reporting from the CEO in
corporation cannot be held o The president or chief executive reference to the firm’s present status
personally liable for the firm’s officer (CEO) is responsible for and prospective targets and both the
debts. managing the firm’s day-to-day CEO and the board make decisions
operations and the implementation to satisfy the shareholders.
o Separable contracting.
of the policies approved by the  The rules dictating voting procedures,
Corporations can contract
Board of Directors. policies on corporate governance, and other
individually with managers,
 The board of directors is the important aspects in the authority and
suppliers, customers, and ordinary
highest-ranking body in a control of the corporation are covered in
employees.  Each contract entered
corporation, and the its Corporate Charter.
into can be renegotiated, modified,
or terminated without affecting the chairman of the board is the o The Corporate Charter is a legal
stakeholders. highest-ranking individual. document generated at the inception
o Better access to capital. The In general, the CEO works of the corporation and can be
under the board and its changed only by a vote of the
company itself (not the owners) can
chairman, and the board has shareholders.
borrow money from creditors, and it
can also issue various classes of the authority to remove the
 
common and preferred stock to CEO or the president under
equity investors. specific conditions.
 The CEO, on the other
 Ownership claims (shares of common and
preferred) can be freely traded among hand, cannot remove the
investors, without obtaining permission board although the CEO
from other investors (for publicly traded can attempt to have an
companies). individual member of the
board be voted out and a