BUSINESS FINANCE

QUARTER 2
INVESTMENT 3. Investment in Shares of Stocks
➔ an asset or item that is purchased with the ADVANTAGE; Share in profits in the form of
hope that it will generate income or Dividends dependent on dividends
appreciate in value at some point in the DISADVANTAGE; Dividends dependent on board
future. declarations.
➔ assets held by the business for the
accumulation of wealth through distribution. 4. Managed funds
➔ tangible or physical assets that contribute ADVANTAGE; Diversification, ease of entry, Fees,
income to the business or individual. performance convenience, not fund guaranteed, lack
of control, management and low taxation investment
TYPES OF INVESTMENT amount.
1. Investing in a Bank DISADVANTAGE; Fees, performance not guaranteed,
1.1 Savings account lack of control, taxation
1.2 Time deposit
- Earns minimal interest, easily withdrawable, 5. Investment in Property
least risky, insured with PDIC up to ADVANTAGE; Price appreciation for real property,
P500,000. safest investment.
- Higher interest, withdrawal after the fixed DISADVANTAGE; Long term process for profits to be
time, Le. 90 days, one year, etc., realized.
2. Investment in Bonds
- Like an IOU (I owe you) issued by a TYPES OF INVESTMENT
government or company with fixed interest Stocks - An investment that represents ownership in
rate-called coupon. a company or corporation
3. Investment in Shares of Stocks
- Like buying a small part of a company, Bull Market - the market is doing well because
earnings through dividends and capital gains investors are optimistic about the economy and are
as price increases. purchasing stocks
4. Managed funds Bear Market - the market is doing well because
- An investment company, which pools the investors are optimistic about the economy and are
money of various investors and invests that purchasing stocks
money in bonds, stocks or a combination of
various investments. Broker - is a person who is licensed to buy and sell
5. Investment in Property stocks, provide investment advice, and collect a
- Can either be real property (real estate) or commission on each purchase or sale
tangible personal property (gold, precious - Purchases stocks on an organized exchange
metals, artworks,etc.) (stock market)
- Over ¾ of all stocks are bought and sold on
Advantage and Disadvantages an organized exchange
1. Investing in a Bank
ADVANTAGE; Security insured by POIC Liquidity for New York Stock Exchange (NYSE)
savings account - Oldest and largest, began in 1792
DISADVANTAGE; Lower returns-1% or less for - 1,366 seats available
savings, 2-3% time deposits Liquidity for time - 2,800 companies
deposits - Average stock price is $33.00
- Strict requirements
2. Investment in Bonds American Stock Exchange
ADVANTAGE; Safest-with fixed interest With fixed - Began in 1844, 2nd largest exchange
term cannot be Lending money to a company for - It’s requirements are not as strict as NYSE
expansion of business, which contributes to economic allowing younger, smaller companies to list
growth - Average stock price is $24.00
DISADVANTAGE; With fixed term, cannot be
withdrawn before maturity at a lower amount. Bonds - A security representing a loan of money from
a lender to a borrower for a set time period, which
pays a fixed rate of interest
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Mutual Funds - An investment that pools money from ➔ Annual report

several investors to buy a particular type of A document detailing the business activity of
investment, such as stocks. a company over the previous year, and
containing an income statement, cash flow
Real Estate - An investor buys pieces of property, statement, and balance sheet.
such as land or a building, in hopes of generating a
profit.
MONEY MANAGEMENT PHILOSOPHIES AND
Savings/Certificate of Deposit - A deposit that earns CYCLE
a fixed interest rate for a specified length of time. Personal Finance
The longer the time period the greater the rate of ➔ includes all financial decisions and activities
return. There is a substantial penalty for early of an individual including budgeting,
withdrawal. insurance, mortgage planning, savings, and
retirement planning.
Collectibles - Unique items that are relatively rare ➔ It involves analyzing current financial
or highly valued. positions, projecting short-term and
- Artwork, Baseball trading cards long-term funding needs, and executing a
plan to fulfill those needs considering
Buying on Margin - is where an investor borrows individual financial constraints.
part of the money needed to invest in a stock from a Money management
brokerage firm. ➔ refers to the processes of budgeting, saving,
investing, spending, or otherwise overseeing
Short Selling - is where an investor sells shares of the capital usage of an individual or group.
stock that they don’t own with the intent to buy them ➔ The term can also refer more narrowly to
back later at a lower price. investment management and portfolio
management.
Diversification - is spreading your assets among
different types of investments to reduce risk. Ten Basic Principle of Financial Management
1. Organize Your Finances
Dollar Cost Averaging - is buying an equal amount - Organizing your finances is the first step to
of the same stock at equal intervals. creating wealth.

Buying and Hold Technique - is where an investor 2. Spend Less Than You Earn
buys stock and holds on to it for a number of years. - The best way to ensure that you either
During that time you are paid dividends and the price overcome debt or avoid it in the first place is
of the stock may go up. to never spend more than you make.

How Can Government Regulations Protect 3. Put Your Money to Work

Investors? - Take advantage of the time value of money.
➔ Regulatory Pyramid
A network of safeguards that surrounds the 4. Limit Debt to Income-Producing Assets
securities industry - from individual - If you have to be in debt, stick to financing
brokerages all the way up to the U.S. items that retain their value over time, like
Congress. real estate and education.

➔ Prospectus 5. Continuously Educate Yourself

A formal written offer to sell securities that - Understand why you are investing so that
sets forth a plan for a proposed business you will stick to your plan. Periodically gather
enterprise. A prospectus should contain the research so you do not miss excellent
facts that an investor needs to make an investment opportunities,
informed decision.
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QUARTER 2
6. Understand Risk 3. Saving - refers to excess cash that is retained for
- The key to understanding return on future investing or spending. If there is a surplus
investments is that the more you risk, the between what a person earns as income and what
better the return should be they spend, the difference can be directed towards
savings or investments.
7. Diversification Is Not Just for Investments - Common forms of savings are: physical
- Find creative ways to diversify your income. cash, savings bank account, checking bank
Everyone has a talent or special skill. "Turn account and money market securities. Most
your talents into a money-making opportunity people keep at least some savings to
manage their cash flow and the short-term
8. Maximize Your Employment Benefits difference between their income and
- Make sure you are taking advantage of all expenses. Having too much savings,
the ways benefits can save you money by however, can actually be viewed as a bad
reducing taxes or out-of-pocket expenses. thing since it earns little to no return
compared to investments.
9. Pay Attention to Taxes
- We all know that any money you make is 4. Investing - relates to the purchase of assets that
going to be taxed. That is why it is important are expected to generate a rate of return, with the
to consider the related tax implications for hope that over time the individual will receive back
every investment. more money than they originally invested.
- Investing carries risk, and not all assets
10. Plan for the Unexpected actually end up producing a positive rate of
- Despite your best efforts, you'll face return. This is where we see the relationship
unforeseen emergencies. between risk and return. Common forms of
investing include: stocks, bonds, mutual
Areas of Personal Finance funds, real estate, private companies,
1. Income - refers to a source of cash inflow that an commodities, and arts.
individual receives and then uses to support - Investing is the most complicated area of
themselves and their family. It is the starting point for personal finance and is one of the areas
our financial planning process. where people get the most professional
- Common sources of income are: salaries, advice.
bonuses, hourly wages, pensions and - There are vast differences in risk and reward
dividends. These sources of income all between different investments, and most
generate cash that an individual can use to people seek help with this area of their
either spend, save, or invest. financial plan.

2. Spending - includes all types of expenses an 5. Protection - Personal protection refers to a wide
individual incurs related to buying goods and services range of products that can be used to guard against
or anything that is consumable. All spending falls into an unforeseen and adverse event. Common
two categories: cash (paid for with cash on hand) and protection products include: life insurance, health
credit (paid for by borrowing money). insurance and estate planning.
- The majority of most people’s income is - This is another area of personal finance
allocated to spending. Common sources of where people typically seek professional
spending are: rent, mortgage payments, advice and which can become quite
taxes, food, entertainment, travel and credit complicated. There is a whole series of
card payments. analysis that needs to be done to properly
- If expenses are greater than the income, the assess an individual’s insurance and estate
individual has a deficit. Managing expenses planning needs.
is just as important as generating income,
and typically people have more control over The Personal Finance Planning Process
their discretionary expenses than their A. Objective Setting
income. Good spending habits are critical for ➔ Quantify monetary objectives with definite
good personal finance management. time frames.
➔ Prioritize objectives.
 BUSINESS FINANCE
QUARTER 2
➔ Examine these objectives with an individual’s Loan Amortization - The process of scheduling out a
resources and limitations. fixed-rate loan into equal payments.

B. Data gathering ★ An amortized loan is a type of loan that

➔ Use surveys, questionnaires, and interviews requires the borrower to make scheduled,
to gather quantitative and qualitative periodic payments that are applied to both
information from the individual. the principal amount and interest.
➔ Quantitative – for assessing financial status ★ An amortized loan payment first pays off the
(i.e. investments, cash flow, liabilities,etc.) interest expense for the period; any
➔ Qualitative – to identify an individual's goals remaining amount is put towards reducing
and objectives, lifestyle, risk-tolerance, etc. the principal amount

C. Data Analysis STEP BY STEP COMPUTATION

➔ Analyze the individual’s financial position and 1. Solve for the MONTHLY RATE using this
cash flows. formula.
➔ Review legal papers (i.e. insurance policies, - Monthly Rate = Interest Rate / No.
trust agreements, wills, etc.). of Payments
➔ Evaluate objectives vis-à-vis the individual’s 2. Solve for the MONTHLY AMORTIZATION
resources and economic conditions. using this formula.
- A = P r(1+r)^n / (1+r)^n - 1
D. Financial Plan Recommendation - A= Monthly Amortization
➔ Propose financial products. - P= Initial Principal/ Loan Amount
➔ At this point, the individual can comment on - r= Monthly Rate
the proposed solutions. - n= No. of Payments

E. Plan Implementation 3. Solve for the INTEREST

➔ Assist the individual in the execution of the - Interest = P x r / n
recommended financial plan. - P= Initial Principal/Beginning
➔ Implementation may involve other entities so Balance
assist the individual in dealing with the - r= Interest Rate
parties involved in the execution of the - n= No. of Payments
financial plan.
4. Solve for the PRINCIPAL.
F. Plan Monitoring - Principal= Monthly Amortization -
➔ Review the financial plan periodically to Interest
evaluate changing market conditions (i.e.
economic conditions, taxes, interest rates, 5. Solve for the Ending Balance
etc.). - Ending Balance = Beginning
➔ Evaluate the financial plan regularly to see if Balance - Principal
it effectively meets the individual’s goals and
objectives.

LOAN AMORTIZATION

Loan - is a form of debt incurred by an individual or

other entity. The lender, usually a corporation,
financial institution, or government, advances a sum
of money to the borrower.

Amortization - is an accounting technique used to

periodically lower the book value of a loan or an
intangible asset over a set period of time.