Program : BACHELOR OF SCIENCE IN

OFFICE MANAGEMENT

Course Code : BFIN-313

Course Title : Basic Finance

Course Credit : 3 units Contact Hours : 54

BULACAN POLYTECHNIC COLLEGE

Bulihan, City of Malolos

COURSE DESCRIPTION: This introductory course to the world of business

and finance deals with the nature, types, rationale and dynamics of business.
It is also an introductory course on managerial and cost accounting,
controllership, financial and profit planning, budgeting, analysis and
interpretation of financial statements. It considers the environment in which
the business enterprise exists: economic, legal-political, social, cultural and
physical. The discussions cover the following topics: overall view of the
Philippine Financial System, monetary and credit management and current
developments and issues related to these areas: impact of government policies
on the financial system especially in relation to money, banking and interest
rates; financial markets in general and the various financial institutions;
different types of financial instruments’ and the development of banking and
other financial institutions.

LEARNING OUTCOMES:

Expected Graduate Attributes General Learning Outcomes

• Critical and creative • Acquired through knowledge of the vision,
thinker. mission, goals and objectives of the
• Good working attitude. College.
• Globally and • Demonstrated support to the vision,
Technologically mission, goals and objectives in
Competitive maintaining high quality education.
Professionals. • Emphasized the important functions of
• Competent, sensitive, banks and how they affect public interest.
productive, and • Acquired a working knowledge of stock
responsive member of markets, with the emphasis on the
society Philippine Stock Exchange.
• Well-informed and • Established an understanding of
expert communicator fundamental concepts of managerial and
in his field of cost accounting.
specialization. • Appreciated the importance of the bond
• Highly knowledgeable and foreign exchange markets to the
and skilled in business economy.
related tasks • Presented, illustrated and discussed
• Capable, creative and important analytical tools for decision
research/service making process.
oriented office • Develops practice on problem solving and
managers strengthen decision making skills, discuss
• Morally and socially and exposure to real life situations.
responsive individuals. • Developed the values of zeal and
community.

TEACHING METHODOLOGIES:
1. Project/Case Study and Research Work
2. Audio and Video presentation
3. Lecture/Discussion
4. Activities

GRADING SYSTEM:
Seatworks/ Assignments/ Quizzes 30%
Projects/ Laboratory Activity 30%
Term Examination 30%
Attendance 10%

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 100%
GRADES PERCENTAGE DESCRIPTIVE RATING
1.00 98- 100 Excellent
1.25 95-97 Excellent
1.50 92-94 Very Good
1.75 89-91 Very Good COURSE POLICIES
2.00 86-88 Good
2.25 83-85 Good Student is expected
2.50 80-82 Satisfactory to participate to the
2.75 77-79 Satisfactory best of his/her
3.00 75-76 Passed abilities in whatever
4.00 73-74 Lacking Requirements activity is
5.00 72 and below Failed scheduled per
module in accordance to his/her preferred but approved mode of learning such
as any or combination of the following:

a) online using the institution’s learning management system “BPC

eLearning”
b) modular (print out or in flash disk for pick up or courier/drop
box).

1. The rule on failing mark for 20% unexcused absences cannot be enforced
due to allowed flexible schedule during this time of pandemic instead a
student has to be mindful of the required pre-scheduled
submission/compliance of the requirements.
2. Assessment of learning shall be done for every module; however, there
shall be two summative tests that a student needs to undergo before the
semester ends. For a student who opted to have summative exam online,
it has to be real time and there should be somebody who would video
him/her to prove that he/she is really the one answering the test.
However, if there is no more community quarantine, the summative
exam shall be done by batch and in school.
3. Mid-Term and Final Exams shall be given only to students who have
completely or partially settled their accounts for the specified period.
4. Student will be held responsible for all assignments and requirements
missed for the entire content on the course regardless of the mode of
learning he/she has chosen.
5. Only students officially enrolled in the course will be allowed to attend
the class.
6. The professor is not obliged to give a special or late test to any student
who fails to take an examination at the scheduled time, except upon
presentation of any certificate (e.g. medical certificate, etc.), or excuse
letter scrutinized by the subject teacher in terms of its veracity.
7. When given a grade of INC. (Incomplete), the student shall complete the
grade within one year; otherwise, a grade of 5.0 will be given
automatically by the registrar.

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 BFIN 313 – Basic FInance
MODULE MATERIALS

List of Modules

No. MODULE
MODULE TITLE
CODE

1 The Philippine Financial System BFin 313-1

2 Banking Key Concepts BFin 313-2

3 The Principles of Stock Market BFin 313-3

4 The Concept and Development of Money BFin 313-4

5 Introduction to Finance BFin 313-5

6 Introduction to Managerial Finance BFin 313-6

7 Finance and Accounting BFin 313-7

8 Understanding Financial Statements BFin 313-8

9 Financial Statements: Tools for Decision Making BFin 313-9

10 The Financial Environment BFin 313-10

11 Financial Intermediation BFin 313-11

12 Interest Rate and Its Role in Finance BFin 313-12

13 Financial Assets BFin 313-13

14 Basic Capital Market BFin 313-14

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 FINANCIAL
STATEMENTS:
TOOLS FOR
DECISION
MAKING
(BFIN 313-9)

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 MODULE CONTENT

COURSE TITLE: Basic Finance

MODULE TITLE Financial Statements: Tools for Decision Making

NOMINAL DURATION: 3 HRS (No. of hours per topic)

SPECIFIC LEARNING OBJECTIVES:

At the end of this module you MUST be able to:
1. Describe the financial reporting environment.
2. Define the areas in which management makes decisions and how these
decisions get reflected in the primary financial statements.
3. Describe and define the elements of income statement, balance sheet and
statement of cash flows.
4. Describe the use of financial ratios in evaluating profitability and long
and short-term risks and how to compute these ratios using actual
financial statements.
5. Perform assessment of the financial reporting risk associated with the
financial statements filed with SEC.
6. Estimate future cash flows and other relevant valuation data to compute
the associated discount rate firm risk from publicly available information
TOPICS:
A. Meaning of Financial Analysis
B. Basic Decision Areas
C. Steps in Analyzing Financial Statements
D. Kinds of Financial Statement Analysis: Vertical and Horizontal Analyses
E. Profitability Ratios
F. Liquidity Ratios
G. Long-Term Debt Ratios
H. Limitations of Financial Statements

ASSESSMENT METHOD/S:
• Written Quizzes and Assignments on PDF sent through FB Messaging or
email
• Oral recitation or Demonstrative Exercises via Google Meet
REFERENCE/S:
1. Leuterio, M.M. & Estepa, C.B.
Banking Theory & Practice (Revised Edition), 2018
Pasig City: Anvil Publishing, Inc.

2. Fajardo, Feliciano R. & Manansala, Manuel M.

Money, Credit and Banking 4th Edition, 2018
Mandaluyong City: National Book Store
3. A) Mejorada, N.D.
Introduction to Management Accounting, 2018 Edition
Makati City: Goodwill Trading Co.,Inc.

B) Edlagan and Mercado

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 Management Advisory Services (Concepts, Methods and
Applications) Volume 1, 2017 Edition
Makati City: Goodwill Trading Co.,Inc.

4. Shapiro, A.C.
Foundations of Multinational Financial Management, 2008
Edition
New York: John Wiley & Sons

5. A) Sollenberger and Schneider

Managerial Accounting, 9th Edition 2016
Hoboken, New Jersey, USA: John Wiley and Sons

B) Homgren, Sundem and Stratton

Introduction to Management Accounting 10th Edition, 2017
Upper Saddle River, New Jersey, USA: Pearson Prentice Hall

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 Assessment No. 9- BFIN 313-9a

Identify.
Instructions: Answer the following questions in the space provided.

1. These are indispensable tools in making financial decisions:

2. This financial statement shows the current financial condition of the

company:

3. This analysis determines the volume of business a company needs to

reach where the income equals expenses:

4. These refer to decisions that involve funding investments and operations

of the company over the long run:

What are three basic decision areas in financial management?

5. ________________________________
6. ________________________________
7. ________________________________

8. This kind of analysis refers to comparative analysis of the financial

statements:

9. This profitability ratio is the ratio of income to net sales:

10. This liquidity ratio relates current assets to current liabilities:

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 Information Sheet BFIN 313-9:
Financial Statements: Tools for Decision Making

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
1. Describe the financial reporting environment.
2. Define the areas in which management makes decisions and how these
decisions get reflected in the primary financial statements.
3. Describe and define the elements of income statement, balance sheet and
statement of cash flows.
4. Describe the use of financial ratios in evaluating profitability and long
and short-term risks and how to compute these ratios using actual
financial statements.
5. Perform assessment of the financial reporting risk associated with the
financial statements filed with SEC.
6. Estimate future cash flows and other relevant valuation data to compute
the associated discount rate firm risk from publicly available information

Introduction:

As with educators, doctors and lawyers, accounting professionals must

go through a period of study, training and practice before they can start
working in accounting or even in bookkeeping. This long period of study,
training and practice is what is called the learning curve. It is called the
learning curve because what is learned now will be used as the foundation for
more complex lessons in the future, which in turn will be the foundation for
even more complex lessons in the further future.

We shall continue this learning curve in this module by looking at how

financial statements are used as tools in management decision making.

So, without further ado, let us begin.

Financial Statements and Financial Analysis:

Financial statements are indispensable tools in making financial decisions. It

is through financial statements that the performance and present condition of
the company or business organization is measured. Financial statements show
performance of the company (income statements); financial condition of the
company (balance sheet); where the cash came from and where it was spent
(cash flow statement); and investments, withdrawals by owners and any profit
earned or loss incurred by the company (statement of changes in owners’
equity).

Financial statements help both internal and external users. They deal with
the understanding of the relationship between financial concepts and daily
decision-making.

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Financial statements are both an analytical and a judgmental process which
helps answer questions in a managerial context.

Basic Decision Areas:

In financial management, there are three basic decision areas: operation,

investment, and finance. These are the three key areas where managers must
make decisions that will profoundly affect the business organization and its
day-to-day operations.

Let us explore these areas in turn.

Operating Decisions:

Operating decisions deal with the deals with the day-to-day

operations/activities of the firm or business organization. These include
decisions that are relevant to pricing, selecting markets, choosing appropriate
production processes and technology, outsourcing payroll, outsourcing
maintenance and janitorial services among others. Basically, these decisions
refer to deciding how the company should operate.

One of these decisions is operating leverage, which involves the

determination of the profitable level and the proportion of fixed costs of
operation versus the amount and nature of variable costs incurred in
manufacturing, trading and service operations.

To determine operating leverage as an operating decision, breakeven analysis

is used. Breakeven analysis determines the volume of business a company
needs to reach where the income equals expenses. It means the company
needs to go over this point to earn a profit. This analysis enables the manager
to set target sales figures that will guide the sales personnel in their sales effort
to earn the desired profit.

Investment Decisions:

Investment decisions refer to deciding what assets to acquire, be they current

assets as marketable securities or non-current assets as property, plant or
equipment and long-term investments in stocks and bonds. These decisions
include decisions relative to which projects to undertake or which business to
enter into. Basically, these decisions refer to deciding where the company
should invest its money.

These investment decisions revolve around how current available resources

and new funding obtained should be utilized on:

1. Working capital – working capital budget for operating expenses and

payment for current liabilities,
2. Plant, property and equipment – capital budgeting, capital expenditure
intended for long-term assets and projects, and
3. Major spending programs – for example, research and development,
product or service development, promotional and advertising programs or

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 long-term investment alternatives for excess funds so that cash can be
converted into an earning asset.

Financial Decisions:

Financial decisions refer to decisions that involve funding investments and

operations of the company over the long run. These include decisions that
relate to the company’s capital structure, debt-equity mix, funding sources,
dividend policies, and cost of capital.

Steps in Analyzing the Financial Statements:

There are three steps in analyzing the financial statements:

1. Understanding the information provided in the financial

statements – any reader of the financial statements, especially the
manager, who is to make decisions to benefit the enterprise, needs to
have a basic knowledge of finance in its contextual meaning to avoid
confusion and misleading or wrong decisions, which are sometimes, fatal
to the business.

2. Drawing logical conclusion based on the data presented – that is,

financial statements for two or more periods are necessary before one
can make a decision on how the business is performing or how the
condition of the company is changing. Comparative analysis of sales or
revenue and expenses can help the manager decide on where the
company needs improvement-sales, manufacturing or expenses.

3. Making the appropriate decision on the course of action to take –

After drawing logical conclusion, the manager or user of the financial
statements is now able to determine the course of action to take to
correct what needs correction and the steps necessary to redirect
company efforts toward the goals that the company has set to achieve.

Kinds of Financial Statement Analysis – Vertical and Horizontal Analysis:

There are two ways of analyzing financial statements, horizontal and vertical.

Horizontal Analysis:

Horizontal analysis refers to comparative analysis of the financial statements.

This would reveal if the profitability and the financial condition of the firm are
improving or not. This comparison usually reveals trend; the reason why it is
sometimes referred to as trend analysis.

Trend analysis involves analysis of significant changes in absolute amounts

and percentages, including an analysis of changes in ratios used in ratio
analysis. Ratios in prior years are compared to ratios in the current year

Comparative Income Statement shows the changes that occur in the

different elements of the income statement in absolute money value and

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percentage of increase/(decrease) to see if the performance of the company is
improving or not.

Examples of a comparative income statement and a comparative balance sheet

are shown on the following page.

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Vertical Analysis:

Vertical analysis refers the type of analysis where one number is compared to another to
identify significant relationships. There are two types of vertical analysis, common-size
statements or percentage analysis, and ratio analysis.

Common-size statements show the relationship between items in a single statement, either in
the balance sheet or in the income statement. It shows the percentage relationship of an
element of the financial statement to a significant total amount in the financial statement.

Ratio analysis compares one figure to another. Also, it compares one period with another
period. There are three other kinds of ratio analyses: Profitability ratios which indicate
whether the company is earning or not, Liquidity ratio which indicate if the company is able
to pay its maturing obligations, and Long-term debt ratio which indicate the ability of a firm
to pay its liabilities in the long run.

Profitability Ratios:

Profitability ratios are ratio analyses which indicate the profitability of a business or
investment. These include:

1. Return on Owners’ Investment (ROI) – sometimes referred to as ROE. It relates income

or profit after income tax to the total stockholders’ equity, preferably on the average of
stockholders’ equity. The average is computed by adding the beginning and the ending
balances and dividing it by two.
2. Profit margin – also known as return on sales, (ROS) is the ratio of income to net
sales.
3. Return on Assets – is a measure of asset utilization.

Liquidity Ratios:

Liquidity ratios are ratio analyses which indicate the solvency of a business organization.
These include:

1. Current ratio – relates current assets to current liabilities and shows the immediate
solvency and liquidity of a firm. It tells how much current assets is available to meet the
current liabilities.
2. Quick ratio – also called acid-test ratio, is a more stringent measure of liquidity and
solvency. It uses only the “quick assets” that can be readily converted into cash.
3. Working capital – is not a ratio but is the difference between current assets and
current liabilities.

Long Term Debt Ratios:

Long term debt ratios are ratio analyses which indicate the leverage of a business
organization. These include:

1. Debt ratio – relates total liabilities to total assets.

2. Stockholders’ ratio – relates total stockholders’ equity to total assets
3. Debt-equity ratio – relates the total liabilities to total stockholders’ equity
4. Interest coverage ratio – indicates the company’s ability to pay its interest on its
obligations

Limitations of Financial Statements:

Financial statements have limitations. These include:

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1. Data are reported at historical costs.
2. Data are all in monetary terms.
3. Financial statements use estimates.
4. Financial statements use judgments.
5. Financial statements are interim in nature.
6. Financial statements assume stable monetary unit.

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