business finance

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An organization, whether political, civic or business in nature, must be aware
of its immediate and future requirements for funds, the possible sources thereof and
the benefits that may accrue to the organization itself and to the community arising
from efficient and effective utilization of said funds.
IMPORTANCE OF BUSINESS FINANCE
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a tool that encompasses a large portion of management activities
provides owners and managers with mathematical and statistical formulas to
assess their companies' effectiveness and efficiency - allows owners and
managers access to time-tested management techniques for improving their

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companies' operations
very important factor in FUNDING, BUDGETING, PERFORMANCE
MANAGEMENT

PRIMARY GOALS OF BUSINESS
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to
to
to
o

earn profits
increase the value of business as an economic entity
improve the quality of life in the community
To earn profit. Funds are invested in a business to earn sufficient return
on investment. Goods and services are made available to the public and
are billed to customers/clients with sufficient rmarkup to cover operating
expenses, financing charges, income taxes and desired net profit
 Net profit - realized results in an increase in assets and owners'

o

equity
To increase its own value as an economic entity. Growth and
stability are the primary bases in measuring the value of a business entity.
Growth - may be measured in terms of increase in assets that appreciate
in value, improved production capacity accompanied by increase in sales
volume and increase in owners' equity Stability - refers to its ability to
weather the ups and downs in the economy or its ability to continue

o

operations despite anticipated risks in business
To improve the quality of life in the community. The social
responsibility of a businessman refers to his contribution to the
improvement of the quality of life in the community.

 Social Responsibility - it entails the positive relationship between
the business and the community in which it operates
 CSR (Corporate Social Responsibility - A company’s sense of
responsibility towards the community and environment (both
ecological and social) in which it operates. Companies express this
citizenship (1) through their waste and pollution reduction
processes, (2) by contributing educational and social programs and
(3) by earning adequate returns on the employed resources.

CONCEPTS AND FUNCTIONS OF BUSINESS FINANCE
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It is concerned in the allocation, procurement, and efficient utilization of
financial resources to enable a business concern to attain its predetermined

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objectives relative to growth, stability, profitability and liquidity.
It involves determination of the requirements of funds, making funds
available at the least cost and seeing to it that funds are used as planned as

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to optimize operations and increase the value of the business, and;
To enable the business to contribute to the economic growth of the
community and the social well-being of its population.

The following are the functions of business finance:
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Allocation of Financial Resources
Procurement of Funds
Effective and Efficient Utilization Financial Resources

Allocation of Funds
In accordance with a company’s financial objectives and standards, projects
or activities and operations are carefully planned, evaluated based on certain
criteria, and subsequently ranked for the allocation. The objective is to be assured
that funds are channeled to activities that are considered profitable and/or will
increase the value of the business itself and that company costs and risk are
minimized.
Procurement of Funds

Capital must be available at the least cost when it’s needed. The
procurement function requires awareness of the different sources of funds and cost
involved. There are short-term and long-term sources with varying requirements
and conditions.
Cost of capital varies with the sources thereof. On boeeowed funds, it is in the
form of financing charges (interest, commissions, and service charges). On capital
contributed by owners or stockholders, the corresponding cost is in the form of
dividends or shares in profit.
Effective and Efficient Utilization Financial Resources
Efficient utilization of financial resources refers to their economical use.
In other words, we see to it that financial resources are actually being used for what
they have been intended. Inefficiency in the use may be caused by extravagance in
the choice of property and equipment, unnecessary expenditures, tardiness of
personnel and non-productive resources.
Effective utilization of financial resources refers to their use towards the
attainment of predetermined objectives. This requires a periodic review of
operations to determine whether they are in accordance with plans and whether the
plans, as prepared, will enable the company to attain its economic short-term goals
and long-term objectives considering the changes in economic environment.
Financial resource must be utilized in a manner that minimizes cost arising
from wastage and lost opportunities due to delays in operations and idle or nonproductive resources. It requires adoption of effective control measures. When
approved projects are already in operations, there should be constant follow-up by
observation, inspection, periodic review of operation with use of progress reports
and comparison between plans and operation so that prompt remedial or corrective
measures may be adopted.

INVESTMENT PORTFOLIO
It refers to a brief case that is normally being used in carrying business
papers and documents. Because of this, the term came to be used as referring to
the aggregate of assets held as investments by an organization or individual.

A business organization or an individual may maintain investments in stocks,
bonds, money market placements, real estate and precious stones and metals. They
are so managed to maximize their aggregate value to the extent that investment
analyst are hired to determine when the company should invest more in one or two
and when the investment should be transferred to other items.

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