Republic of the Philippines

DEPARTMENT OF EDUCATION
Region IV – A (CALABARZON)
Division of Cavite
ANGELO L. LOYOLA SENIOR HIGH SCHOOL
Carmona, Cavite

BUSINESS FINANCE
1 Quarter – Week 3 and 4
st
S.Y. 2021 - 2022

Name: _____________________________ Teacher: __Mrs. Julie O. Villanueva___

Section: _____________________________ Date: ________________________

Week 3

After this module, you are expected to:

Identify the steps in the financial planning process (ABM_BF12-IIIc-d-10)
a. define financial planning;
b. explain the importance of financial planning; and
c. illustrate the financial planning process.

Learning Task 1.
A. Direction:: Write the letter of the correct answer.

_______1. It includes the vision, mission, and goals set by the top level of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______2. It helps the company by translating the strategic plans into specific plans or actions carried out by
the middle level of management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______3. It involves day-to-day operations carried out by the lower-level management.
A. tactical planning C. operational planning
B. strategic planning D. financial planning
_______4. It sets the company’s direction.
A. short-term goal C. mid-term goal
B. long-term goal D. none of the above
_______5. It describes what a company wants to become.
A. vision C. goal
B. mission D. objective

B. Directions: Arrange the financial planning process in order using Roman Numerals (I, II, III, IV,
V, VI).
_______6. Assign the task to accountable and responsible individual or team and have a timeline.
_______7. Identify the resources needed.
_______8. Identify goals that are related to the tasks.
_______9. Establish an evaluation system for monitoring and controlling.
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_______10. Determine contingency plans.
_______11. Set goals or objectives.

Planning is very important because it provides directions to achieve the organization’s objectives.
Planning is useless without a strategy. Strategic planning helps in achieving the company’s objectives. It is
designed to guide the company in operational and financial decisions. A strategic plan includes the vision,
mission, and goals set by the top level of management. This plan will be the basis of long-term decisions.
Tactical planning helps the company by translating the strategic plans into specific plans or actions carried
out by the middle level of management. Operational planning involves day-to-day operations carried by the
lower-level management. This plan transforms the tactical plan into specific and detailed objectives.

Learning Task 2.
Directions: Unscramble the following words to form the functions of a finance manager.

1. ISTINVENG ________________________
2. ERANGOTIP ________________________
3. FINGNANCI ________________________
4. ENDIVIDD LIPIEOCS ________________________

To perform these functions, a finance manager should make a plan. Planning is very important in every aspect
of the business. It is related in every function of management. The next lesson will be financial planning.

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Learning Task 3.
Direction: Answer the following questions.

1. What are your goals in life?

2. How do you start setting goals?

3. Based on the goal ladder, how does setting goals lead to success?

Scoring Rubrics:

As you can see in the illustration, before you can reach your goals, there are steps to do. These steps are the
same as the process of financial planning. You must identify the first step before you can go to the next
level. Let’s begin!

Financial planning is the process of deciding how an organization can accomplish its financial goals and
objectives. It is divided into:
1. the long-term financial plan, also known as strategic financial plan and
2. the short-term financial plan, also known as the operating financial plan.

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Importance of Financial Planning
1. Financial planning helps managers assess the impact of the strategy or actions on their company’s
financial position, cash flows, and earnings and if there is a need for additional financing.
2. It helps the company in the survival when uncertainties come along. Risks are calculated and
alternatives can be done. Through financial plans, the firm can adapt to the changes happening in
their environment.
3. It gives directions to the organization. Since plans are made, the firm can make necessary actions.

Steps in Financial Planning Process

1. Set goals or objectives. The goals of a company can be divided into:

• short-term goals (1 year)
• mid-term goals (3-5 years)
• long-term goals (5-10 years or even longer)
Long-term goals set the company's direction. Short-term goals are the specific steps or actions that
will ultimately achieve the company's long-term goals. Vision describes what a company wants to become
and mission is how the company will achieve its vision.

2. Identify the resources needed. Resources comprise production capacity, human resources, and financial
resources.

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3. Identify a goal that is related to the tasks. The management must find out how to achieve the goal. For
example, if they want to increase sales, they can train their sales agent to become more skilled in dealing
with clients. They can also make sales promotions as a marketing strategy.

4. Assign the task to an accountable and responsible individual or team and have a timeline. After
identifying the task to achieve the goal, the company must identify who will be accountable for the activity.
There should be a specific timeline for it.

5. Establish an evaluation system for monitoring and controlling. The management must establish a process
that allows them to supervise the plan. This can be done by comparing the budgets and projecting financial
statements with the actual results.

6. Determine contingency plans. The management has alternative plans to minimize the risk or bad effect to
the company.

A contingency plan is an alternative plan of an organization to respond efficiently to a future event

or situation that may or may not happen. Budgets and projected financial statements are also considered in
contingency planning.

Learning Task 4
Directions: Accomplish the following tasks.

1. Define financial planning using your own words. (1 to 2 sentences).

2. Enumerate the different steps in planning.

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3. Explain the importance of financial planning. (1 to 2 sentences)

Scoring Rubrics:

Performance Task 1.
Directions: Write an eight-line poem about financial planning and its importance in your life as a student.

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Learning Task 5
Directions: List at least 10 things you want to achieve in your life or any plans that come into your mind.
Identify whether each is a short-term goal or a long-term goal.

Things you want to achieve Short-term goal or Long-term goal

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

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Week 4

After this module, you are expected to:

Explain tools in managing cash, receivables, and inventory (ABM_BF12-IIIc-d12) and describe
concepts and tools in working capital management.

Learning Task 6
Directions: Choose the correct answer from the choices.

1. It is designed to ensure that a company operates efficiently by monitoring and using its current assets and
liabilities to the best effect.
A. working capital management C. inventory management
B. cash management D. receivable management
2. These refer to cash, accounts receivable, inventories, and prepaid expenses.
A. current assets C. current liabilities
B. noncurrent assets D. owner’s equity
3. It is the difference between current assets and current liabilities.
A. permanent working capital C. temporary working capital
B. net working capital D. contractual working capital
4. In this working capital financing policy, the permanent working capital requirements should be financed
by long-term sources while temporary working capital requirements should be financed by short-term
sources of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
5. It is the time to collect cash from the sale of the inventory.
A. days of inventory C. days of receivable
B. days of payable D. none of the above
6. In this working capital financing policy, some of the permanent working capital requirements are
financed by short-term sources of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
7. In this kind of working capital policy, some of the temporary working capital requirements are financed
by long-term sources of financing.
A. maturity-matching C. aggressive
B. conservative D. modern
8. It is the borrower’s willingness to pay the loan.
A. character C. collateral
B. capacity D. condition
9. It is the borrower’s security pledge for the loan payment.
A. character C. collateral
B. capacity D. condition
10.It is the borrower’s ability to pay the loan.
A. character C. collateral
B. capacity D. condition

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 Working capital management is the proper administration of current assets and liabilities. Good
working capital management enables the firm to pay its financial obligation, establish good relationships
with suppliers and creditors, and improve the earnings of the company.
A working capital management is important because it can improve the business profit. It allows the
company to pay its financial obligations and leads to the growth and survival.
Current assets like cash, accounts receivable, inventories, and prepaid expenses used in the
operations of the business are called working capital. It means that they can be converted into cash, sold, or
exchanged. The amount of resources used in the operations of the business can be affected by current
liabilities like trade
accounts payable.
Net working capital is the difference between current assets and current liabilities.

Net Working capital = Current Assets – Current Liabilities

Example: The total assets of Masipag Corporation amounts to Php 20,000,000.00 and its total current
liabilities amounts to Php 16,000,000.00.

• The working capital of Masipag Corporation is Php 20,000,000.00.

• The net working capital of Masipag Corporation is Php 4,000,000.00
(Php 20,000,000 – Php 16,000,000.00)

Operating Cycle and Cash Conversion Cycle

Operating Cycle = Days of Inventory + Days of Receivable

Where:

Days of Inventory (Inventory Conversion Period) is the average number of days to sell its inventory.

Days of Receivable (Receivable Conversion Period) is the time it takes to collect cash from the sale of the
inventory.

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The cash conversion cycle (CCC) is a metric that expresses the time (measured in days) it takes for a
company to convert its investments in inventory and other resources into cash flows from sales.
(investopedia.com)

Cash Conversion Cycle = Operating Cycle – Days of Payable

Example:

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 The operating cycle is 173 days which means that it is longer to recover its inventory. A shorter
cycle is preferred because it means business is more efficient and has enough cash to meet financial
obligations. The company must find ways to decrease its operating cycle.

Days of Payables

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Learning Task 7.
Directions: Try to guess the following pictures.

Working Capital Financing Policies

1. Maturity-matching working capital financing policy
The permanent working capital requirements should be financed by long-term sources while
temporary working capital requirements should be financed by short-term sources of financing.

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2. Aggressive working capital financing policy
Some of the permanent working capital requirements are financed by short-term sources of
financing. Managers use this kind of policy because long-term sources of funds have a higher cost as
compared to short-term sources of financing. By financing some of the permanent working capital
requirements with short-term sources of financing, the financing cost is minimized, which in turn,
improves net income.
But what is the trade off? Since it is short-term, the debt has to be paid soon and the company may
not yet have enough cash by the time the debt matures. This refers to liquidity risk and this risk
increases with the aggressive working capital financing policy.

3. Conservative working capital financing policy

There are of the temporary working capital requirements that are financed by long-term sources of
financing.
Some companies use this policy because they don’t want to be stressed too much and to be focused
on other company’s matter. It can also be their management style. It will be easy for the company to
raise funds (Cayanan and Borja, 2017).

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To summarize the financing policy, see the table below:

Permanent or fixed working capital refers to the minimum level of current assets required by a firm
to continue the operations of the business and to cover up all current liabilities.

Temporary working capital is the difference between net working capital and permanent working
capital. It can help the business survive during the slack season.

Temporary working capital = Net working capital – permanent working capital.

Long-term sources of financing include long-term debt like loan from a bank and equity such as
common stock and preferred stock. Short-term sources include short-term loans from a bank.

Cash Management

Cash management involves the maintenance of a cash and marketable securities investment level
which enables the company to meet its cash requirements and at the same time, optimize the income
of idle funds (Cabrera, 2015).

The objectives of cash management are to meet the financial obligation of the firm and to avoid
losses in the normal operation of the business.

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Reasons for Holding Cash
1. Transaction Motive – Cash is needed for the day-to-day operations of the business.
2. Contractual Motive – Some banks require a company to maintain a certain compensating balance
for their deposit accounts and loans.
3. Precautionary Motive – Firms hold cash to be ready in case of unwanted situations such as
slowdown of accounts receivables that may affect the fund for operations.
4. Speculative Motive – A company holds cash for other investment opportunities

Cash budget is used in determining the cash needs of the company. It shows the projected cash
receipts and cash disbursements for a particular period of time. (Cash budget was discussed in
Module 3)

Receivables Management

Providing credits to a customer is one way of increasing sales and gaining additional customers.
Properly managing the accounts receivable lets the company continue its operations. To minimize
loss from accounts receivable, the customer must be given credit terms and credit evaluation must
likewise be done.

The following 5C’s of credit can be used in credit evaluation.

1. Character – is the borrower’s willingness to pay the loan.
2. Capacity – is the borrower’s ability to pay the loan.
3. Capital – is the borrower’s financial resources.
4. Collateral – is the borrower’s security pledge for the loan payment.
5. Condition – is the current economic or business conditions.

Inventory Management

Inventory is the stocks of the product the business is selling and the parts or raw materials that made
up the product.
Inventory management is very important for manufacturing and merchandising companies especially
companies with perishable products. There should be a sufficient number of inventories to secure the
smooth operations of the business.

The following are the list of internal controls that management should consider in to protect their
inventories.
1. Separating the custodial functions from recording functions. The company should not allow the
assignment of custodial functions from recording functions to one person to avoid manipulation of
records. 2. Aging of inventories. It allows the company to decide what to do with slowmoving items.
For example, they can use bundling or buy one take promo.
3. ABC Analysis. This approach categorizes the inventories according to their values. A is
considered the most important inventory or with the highest values, B is considered the average item
and C is the least important or has lower value.

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Learning Task 8
A. Directions: Below is the summarized financial information of Redz Company. Compute the
following.
1. Average Inventory _________________
2. Average Receivable _________________
3. Average Payable _________________
4. Inventory Turnover Ratio _________________
5. Days of Inventories _________________
6. Receivables Turnover Ratio _________________
7. Days of Receivable _________________
8. Payables Turnover Ratio _________________
9. Days of Payable _________________
10. Operating Cycle _________________

B. Directions: Answer the following questions in to three (3) to five (5) sentences.
1. Why is proper management of working capital important to a company’s financial health?

2. What are the three working financing policies? Enumerate and discuss briefly.

3. What are the benefits and importance of cash and accounts receivable management?

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Scoring Rubrics:

Learning Task 9
Directions: Answer the following questions in one (1) to two (2) sentences.
In this lesson,
I learned that:

I realized that:

Scoring Rubrics:

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A. Directions. Choose the correct order of the financial planning process from the options below. (6
points)
A. Assign the task to accountable and responsible individual or team and have a timeline.
B. Establish an evaluation system for monitoring and controlling.
C. Determine contingency plans.
D. Set goals or objectives
E. Identify the resources needed.
F. Identify goals that are related to the tasks.

B. Directions: Match column A with column B.

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C. Directions: Choose the correct answer from the box below.

______ 1. It refers to the minimum level of current assets required by a firm to continue the
operations of the business and to cover up all current liabilities.

______ 2. These are current assets used in the operations of the business.

______ 3. It is the difference between current assets and current liabilities.

______ 4. In this kind of financing policy, some of the temporary working capital requirements are
financed by long-term sources of financing.

______ 5. In this kind of financing policy, some of the permanent working capital requirements are
financed by short-term sources of financing.

______ 6. In this kind of financing policy, the permanent working capital requirements should be
financed by long-term sources while temporary working capital requirements should be financed by
short-term sources of financing.

______ 7. This concept classifies the inventories into three categories according to its importance or
value.
______ 8. It is the difference between net working capital and permanent working capital.

______ 9. It is the borrower’s financial resources.

______ 10. It the borrower’s security pledge for the loan payment.

______ 11. It is the current economic or business environment.

______ 12. It is the borrower’s willingness to pay the loan.

______ 13. It is the borrower’s ability to pay the loan.

______ 14. It is the number of days it takes to collect cash from the sale of the inventory.

______ 15. It is the average number of days to sell its inventory

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