BUSS FI ENDTERM Flashcards by Jasmine Jeshamae C. Tabangcora

” This quote from the musical
Kismet i

Princes come and princes go

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exceptionally apropos of finance.

musical Kismet

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also referred to as a stockholder

shareholder

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is a person, company, or institution that owns at least one
share of a company’s stock,

equity

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encouraged to develop a longer
perspective for the company that they manage.

Management

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links the savers and the users of funds.

Financial system

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Financial system components

Financial institution, Financial Markets, Financial Instruments, Financial Services, Currency(money)

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can come from households, individuals, companies,
government agencies or any other entity whose cash
inflows are greater than their cash outflows.

Savings

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provide mechanism where savers can put their
excess funds through deposits.

Banks

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give depositors
interest on the money deposited to them.

Banks

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can also invest in financial instruments like
governments securities and corporate bonds.

Banks

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offer different products.

Insurance Companies

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can be broadly categorized into life insurance
products and non-life insurance products

Insurance products

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protect the insured from the loss
of life while non-life insurance products protect the
insured from the loss of or damage to properties.

Life insurance products

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provides a system for
the trading of equity securities of publicly listed
companies.

The Philippine Stock Exchange (PSE)

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Investing in the stock market must be coursed through

stock brokerage firms

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one can trade in the stock market
through the Internet.

Online brokers

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2 of the online brokers in the Philippines.

COL Financial
BPI Trade

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provide opportunities for big and small
investors to invest in financial instruments which they
would not have considered on their own, or they may have
considered but do not have the time and expertise to do it.

Mutual Funds

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Financial Instruments are generally classified into two
major categories:

Equity securities and debt securities.

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has a priority over a common stock in
terms of claims over the assets of a company.

Preferred stock

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have priority over common
stockholders in cash dividend declaration.

Preferred Stockholders

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the real owners of the company.

Common stockholders

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are financial assets that entitle their owners to
a stream of interest payments.

Debt securities

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a type of financial asset that is created when one party lends money to another.

Debt securities

Investors lend money to the government in return for interest payments

Coupon Payments

are also known as fixed-income securities because they generate a fixed stream of income from their interest payments.

Debt Securities

an upper-level executive who oversees all financial matters for an organization, from making sure payroll is finished on time to analyzing market trends.

The vice president of finance

The most important financial statement account in forecasting

Sales

a schedule which provides information regarding the number of units that should be produced over a given accounting period based on expected sales and targeted level of ending inventories.

Production Budget

Required production in units

Expected Sales + Target Ending Inventories – Beginning Inventories

three types of working capital financing policies management

1. Maturity-matching working capital financing policy 2. Aggressive working capital financing policy 3. Conservative working capital financing policy

include long-term debt and equity such as common stocks and preferred stocks

Long-term sources of financing

Short-term sources include short-term loans from a bank. These short-term loans from banks are called

working capital loans

can bring crystal clarity to the concept

diagram

3 levels of diagram

fixed assets, permanent working capital, and temporary working capital.

a risk-free strategy of working capital financing.

Conservative approach

the most liquid asset of a company but is also the most vulnerable to theft

Cash

A basic internal control system should not allow the assignment of custodial function and recording function to one person unless you are the owner

Separating cashiering function from the recording or accounting function.

It is important to know the collections from business every day as these collections reflect the health of the company

Issuing official receipts for collections and summarizing collections in a daily collection report.

A good internal control over cash is by depositing the collections intact

Depositing collections.

If all collections need to be deposited, then payments must be made through a check voucher system

Adopting the check voucher system for payments

shows the expected cash receipts and disbursements for an accounting period.

cash budget

It can be prepared on a monthly or a quarterly basis for a year.

cash budget

This includes collections from receivables, proceeds from loans, or issuance of new shares of stocks and advances from stockholders

Cash Receipts

This section includes payments to suppliers and other service providers, payments for loans and cash dividends.

Cash disbursement

This provides information regarding the amount of excess cash or cash deficit for the period

Net cash flow for the period

This is computed by deducting cash disbursements from the collections for the period.

Net cash flow for the period.

No business can operate without cash.

Target cash balance.

the amount of cash that management wants to always maintain given its present level of operations, stability of cash flows, and the macroeconomic and political conditions.

Target cash balance.

This is the most important part of the cash budget where the possible funding requirements are shown on a cumulative basis.

Cumulative excess cash or funding requirements.

This part of the cash budget is very important in planning because if the management can estimate the amount of cash they will need in the future and when it will possibly arise, this early, management can identify the possible sources of cash.

Cumulative excess cash or funding requirements.

Summarizes the amount of cash and cash equivalents entering and leaving a company

Statement of Cash Flows

Measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses

Statement of Cash Flows

is prepared after taking into consideration the effects of the adjusting entries.

Preparing adjusted trial balance

The 5 Profitability Ratios

Return on Equity (ROE) Return on Assets (ROA) Gross Profit Margin Operating Profit Margin Net Profit Margin

5 Major sources of Risk

Business risk Financial risk Liquidity risk Exchange rate risk Country risk

Interest Coverage Ratio =

Operating Income ÷ Interest Expense

Debt to Equity Ratio =

Total Liabilities ÷ Total Stockholders’ Equity

show the capital structure of the company, that is, how much of the total assets of a company is financed by debt and how much is financed by stockholder’s equity.

Leverage ratios

Debt Ratio =

Total Liabilities ÷ Total Assets

can also be used to measure the company’s ability to meet long term obligations.

leverage ratios

Quick Asset Ratio =

(Cash + Trade Receivables) ÷ Current Liabilities

Current Ratio =

Current Assets ÷ Current Liabilities

Two commonly used liquidity ratios:

the current ratio and the acid test ratio or sometimes called quick asset ratio.

measure the ability of a company to pay its maturing obligations from its current assets.

Liquidity ratios

Net Profit Margin =

(Net income ÷ Sales) x 100%

Operating Profit Margin =

(Operating Income ÷ Sales) x 100%

Gross Profit Margin =

(Gross Profit ÷ Sales) x 100%

ROA =

(Operating Income ÷ Total Assets) x 100%

ROE =

(Net income ÷ Stockholders’ Equity) x 100%

need to determine the bank’s overall financial position and performance before transacting with them.

Depositors

The major deposit instruments

Savings account Checking account Time deposit account

The lesson that you have learned about investing.....

As I delve into the world of investment, I have learned about various key concepts and strategies that can help make me more knowledgeable about investing. Investing in various assets, such as stocks, bonds, and real estate, can help mitigate risk and maximize returns. Additionally, I have learned about the significance of conducting thorough research before making any investment decisions. This involves analyzing financial statements, studying market trends, and understanding the company's competitive advantage. By doing so, I can identify potential opportunities and avoid making impulsive or uninformed choices.

What financial intermediaries are also in charge of managing individual savings while it receives a premium payment placed in loans or investments in order to accumulate funds to cover future benefits?

Life insurance company

What type of financing is being referred when a company uses retained earnings to finance new projects or investments?

Internal Financing

most closely associated with evaluating a company's ability to generate shareholder wealth over time?

ROE

According to the Pecking Order Theory, which of the following indicates how a firm finance its investments

The order in which it considers financing options

Which of the following is not a characteristic of preferred stock?

Lower priority in the event of liquidation

What does the yield on a bond represent?

the percentage return that an investor can expect to earn over the life of the bond.

Hello Corp has current assets of P300,000 and current liabilities of P250,000. What is the BEST strategy for Hello Corp to raise its working capital?

Refinancing of P50,000 of short-term debt with long-term debt