Business Finance

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Introduction

Welcome to the University of San Agustin! Thank you for choosing our
University as your school.

This is Business Finance, a specialized subject in the Accountancy, Business and

Management (ABM) strand of the K to 12 Senior High School Curriculum. In this
subject you will learn about the basic concepts and principles, tools and techniques of the
financial operation involved in the management of business enterprise.

This is learner-friendly module. You will learn at your own pace. It contains the
following sections:

• Let’s Try This is a preliminary activity to introduce the lesson;

• Let’s Apply This demonstrates the application of the concepts and
principles;
• Let’s Do This tests your learning about the topics;
• Let’s Remember highlights the important points to be remembered about
the weekly lesson; and
• Let’s See What You Have Learned allows you to reflect and write your
insights on what you have learned for the week.

Subject Description

This course deals with the fundamental principles, tools, and techniques of the
financial operation involved in the management of business enterprises. It covers the
basic framework and tools for financial analysis and financial planning and control,
and introduces basic concepts and principles needed in making investment and
financing decisions. Introduction to investments and personal finance are also covered
in the course. Using the dual-learning approach of theory and application, each chapter
and module engages the learners to explore all stages of the learning process from
knowledge, analysis, evaluation, and application to preparation and development of
financial plans and programs suited for a small business.

This subject is divided into eight (8) weekly lessons.

Lesson 1: Focuses on the definition and different areas of finance, discusses finance in a
business organization, and describes the functions and qualifications of a
finance officer.

Lesson 2: Focuses on a business environment, financial system, and its elements, bonds,
and stocks.

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Lesson 3: Focuses on the preparation of financial statements. Lesson 4: Focuses
on the analysis of financial statements: Traditional approaches
Lesson 5: Focuses on the analysis of financial statements: Financial mix ratios
Lesson 6: Focuses on the financial planning process and budgeting.
Lesson 7: Focuses on the working capital, its tools and techniques
Lesson 8: Focuses on short-term financing and long-term funds, its sources and costs and
the time value of money.

Learning Competencies

At the end of this module, the learners are expected to:

1. Explain the major role of financial management and the different individuals
involved, distinguish a financial institution from financial instrument and financial
market, enumerate the varied financial institutions and instruments and their
corresponding services and explain the flow of funds within an organization through and
from the enterprise.
2. Prepare financial statements, define the measurement levels, namely, liquidity,
solvency, stability, and profitability, perform vertical and horizontal analyses of financial
statements of a single proprietorship and compute, as well as analyze, and interpret
financial ratios such as current ratio, working capital, gross profit ratio, and net profit.
3. Identify the steps in the financial planning process, illustrate the formula and format
for the preparation of budgets and projected financial statement, explain tools in
managing cash, receivables, and inventory.
4. Cite bank and nonbank institutions in the locality that would serve as possible
sources of funds for business operations, compare and contrast the loan requirements of
the different bank and nonbank institutions, draw a flow chart on the steps in loan
application, and list down obligations of entrepreneurs to creditors as well as identify
uses of funds.
5. Calculate future value and present value of money, compute for the effective annual
interest rate, compute loan amortization using mathematical concepts and the present, and
apply mathematical concepts and tools in computing for finance and investment
problems.

PRE-ASSESSMENT. This preliminary examination determines your baseline

knowledge about concepts and principles and theories in business finance. You are
required to take this examination before proceeding to the lessons contained in this
module.

Test. 1. True or False. Read each statement carefully. In the space provided, write True
if the statement is correct, and False if the statement is incorrect.

No. Statement Answer

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1. A business may change the presentation of its financial statements when it
feels the necessity to do so.

2. The financial system is highly responsible for the channeling of funds from
the savings of the household or business to the individuals and corporate
organizations that need funding support.

3. Banks accept deposits and bills payment, receive loans, and mediate the
transfer of funds domestically or abroad.

4. The finance officer deciding whether to open a branch or not is a financing

decision.
5. Investors who hold stocks receive return from their investments in the form
of dividends and interests.

6. In finance, a public market is an organized financial market.

7. The proceeds of the trading in the primary market go to the buyer of the
securities.

8. The government plays a passive role in the stream of money in the economy
through the Bangko Sentral ng
Pilipinas.
9. An item that does not represent faithfully the transaction will be in conflict
with the objective of financial statements.
10. Finance is a science but not an art.

11. A trust company acts as the beneficiary of the property for and on behalf of
the custodian for a fee.

12. In mutual funds, the funds from the proceeds of the sale are pooled
separately and channeled to the savers.

13. Fair representation implies faithful representation of assets, liabilities,

income, and expenses notwithstanding the principles of materiality and cost-
effectiveness.

14. Financial statements are unstructured representation of the financial

position, financial performance, and cash flows of the business.
15. Finance is considered a science since it involves financial facts and truths.
16. Financial planning is undertaken by the different units of an organization
including the marketing and finance units.

17. Financial planning is making a forecast on the financial operations of the

business.

18. The vision and mission of the business are given importance in the
formulation of the strategic plan.
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 19. The sales forecast is prepared ahead of the production schedule.

20. The financial plan must be carefully reviewed by the higher level of
management after its implementation.

21. The budget should provide clear directions to the business in attaining the
predetermined goals and objectives.

22. The budget embodies separately the planning and controlling functions of
the management.

23. The performance of every unit as much as possible should be higher or at

the very least equal to the cost and expense level.

24. The preparation of budget is not only performed by one person or one
department.

25. A unit in an organization does not operate

independently.

26. The term working capital has no universal standard definition.

27. In finance, working capital refers to the excess of current assets over current
liabilities.

28. The growth of the business is the primary factor for the increase in current
assets, particularly the inventory and equity.

29. When the production capacity increases, the

requirements for the raw materials increase as well.

30. A business that maintains a high level of working capital is considered to be

adopting a conservative asset policy.

Test II. Multiple Choice. Shade the circle that corresponds to your answer.
1. Which of the following issues the guidelines and directives which serve as the basis in the
preparation of the financial statements?
a. International Accounting Organization
b. Association of Accounting Specialists
c. Financial Reporting Standard Council
d. Global Financial Reporting Group

2. The following statements are true regarding financial statement, except which one?
a. The financial statements specify the worth of the business.
b. The financial statements reflect the image of the business.

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 c. There is a hierarchy of importance among the financial statements.
d. Most financial decisions are made based on the information provided by financial
statements.

1. It refers to individuals or parties that are not directly involved in the operation of the
business.
a. internal users c. both A and B
b. external users d. neither A nor B

2. The following users are classified as internal users, except which?

a. government agencies c. management
b. employees d. none of the Above

3. The following users are classified as external users, except which?

a. suppliers c. lenders
b. customers d. none of the above

4. Which of the following is the information needed by employees from the financial
statements?
a. Financial statements assist them by providing information about trends and recent
developments of the business entity and the range of its activities.
b. Financial statements provide them with information regarding the risk inherent in the return
on their investment.
c. Financial statements help them assess the ability of the firm to provide remuneration.
d. None of the Above

1. The following are basic guidelines in the preparation and presentation of the financial
statements mentioned in the Framework and Standards, except which?
a. fair representation c. accrual basis of accounting
b. going concern assumption d. conflict of Interest

2. Which of the following basic guidelines requires that the effects of transactions and other
events are recognized when they occur and not when cash is received or paid?
a. going concern assumption c. accrual basis of accounting
b. offsetting principle d. consistency of presentation

3. Which of the following assists users of financial statements in making an economic decision
based on the assessment of trends of financial information for predictive purposes?
a. disclosure of accounting policies
b. fair representation
c. comparability
d. offsetting Principle

4. Which of the following is an element of the Statement of Comprehensive Income?

a. assets c. capital

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 b. liabilities d. none of the Above

5. Which of the following refers to the ability of business to pay its long-term financial
obligations?
a. financial structure c. capacity for adaptation
b. liquidity d. solvency

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6. Which of the following refers to the ability of a business entity to invest excess available
resources or raise needed funds through borrowings without difficulty in times of need?
a. financial structure c. capacity for adaptation
b. liquidity d. solvency

7. The ______________ of a business entity is usually expressed in terms of its liquidity,

solvency, financial structure, and capacity for adaptation.
a. financial condition c. comprehensive income
b. financial position d. equity

8. It refers to a structured financial statement that shows the financial performance of a

business entity for a given period.
a. statement of comprehensive income
b. statement of changes in equity
c. cash flow statement
d. balance sheet

9. Which of the following financial statements provides information about the historical
change – inflows and outflows – in cash and cash equivalents of an entity during the period
from operating, investing, and financing activities?
a. statement of comprehensive income
b. statement of changes in equity
c. cash flow statement
d. balance sheet

10. Which of the following refer(s) to short-term, highly liquid investments that are readily
convertible into known amounts of cash near their maturity that they present insignificant
risk of changes in value or interest rates?
a. cash equivalents c. investment
b. trading securities d. prepaid expenses

11. This represents the funds contributed by shareholders.

a. share capital d. revaluation adjustment
b. reserves
c. retained earnings

12. These are the principal revenue-producing activities of the entity.

a. financing activities c. operating activities
b. investing activities d. revaluing activities
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13. Which of the following information is not provided by the financial statements?
a. financial position
b. management stewardship of resources
c. candidates for board election
d. none of the above

14. Which of the following is not a traditional method of analyzing the financial statements?
a. trend approach c. comparative approach
b. vertical approach d. none of the above

For items 21 and 22:

USAA Inc.
Statement of Comprehensive Income
December 31, 2018
Sales ₱4,900,000.00

Cost of Sales 3,100,000.00

Gross Profit 1,800,000.00

Operating Expenses 800,000.00

Operating Income 1,000,000.00

Interest Expense 50,000.00

Income Before Tax 950,000.00

Income Tax 285,000.00

Net Income

15. Using the Vertical Approach, USAA Inc.’s operating performance resulted in an operating
income of?
a. 20.04% c. 1.20%
b. 20.41% d. None of the Above

16. Using the same approach, the income tax reduced the Operating Income by?
a. 5.81% c. 5%
b. 5.91% d. None of the Above
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17. Which of the following is correct in performing Horizontal Analysis?

a. It is conducted on financial statements with the same day and month but of different years.
b. It is administered to analyze a firm’s financial statements for a single accounting period.
c. It is done when comparing the financial performance of a firm beyond two years.
d. Both B and C are correct.

18. Which of the following is not executed by the Chief Financial Officer in terms of investing
decision?
a. cost of borrowings
b. land acquisition for new branch
c. construction of a new processing plant
d. investment portfolio

19. Which of the following focuses on capital budgeting decision on the acquisition of assets
and its corresponding financing scheme?
a. capital market c. financial management
b. personal finance d. none of the above

20. Which of the following is not a key concept of finance?

a. both a science and an art
b. system, structure, and process
c. management, allocation, and utilization
d. none of the Above

21. Which of the following refers to the resources that are expected to provide income and
achieve appreciation or growth of the business?
a. financial resources c. financial expenditures
b. financial investments d. none of the Above

22. Which of the following is not a major division of business finance?

a. financial management c. capital market
b. public finance d. none of the above
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For items 29, 30 and 31:
The following is the information gathered from the Sia and Sy Merchandising’s
Statement of Comprehensive Income relative to its gross profit computation:

2018 2017
Sales ₱1,700,000.00 ₱1,450,000.00
Cost of Sales ₱1,050,000.00 ₱1,000,000.00

23. What is Sia and Sy’s gross profit for 2018?

a. ₱150,000.00 c. ₱450,000.00
b. ₱650,000.00 d. None of the Above
24. What is Sia and Sy’s gross profit rate for 2017?
a. 38% (38.24% for 2018) c. 54%
b. 45% d. None of the Above

25. Which year did Sia and Sy Merchandising perform better in terms of gross profit?
a. 2017 c. Both A and B
b. 2018 d. Neither A and B

26. Which of the following measures the proportion of debt and equity in the capital structure of
the business?
a. Times Interest Earned c. Debt ratio
b. Debt-to-equity ratio d. Gross Profit Rate

27. This refers to the ability of a business entity to settle its currently maturing financial
obligations.
a. financial structure c. capacity for adaptation
b. liquidity d. solvency

28. Which of the following is considered the final product of the whole accounting process?
a. trial balance c. journal entries
b. financial statements d. ledger

For items 35, 36, and 37:

The records of LMN Enterprises relative to their inventory turnover are as follows:
2018 2017
Inventory ₱400,000.00 ₱240,000.00
Cost of Sales ₱1, 050,000.00 ₱1,000,000.00

29. Based on the given data, what is the inventory turnover for 2017?
a. 4.69 c. 4.96
b. 4.17 d. none of the Above

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30. What is the inventory turnover for 2018?
a. 4.69 c. 4.96
b. 4.17 None of the Above
31. Between the two years of operation, which year did LMN Enterprises perform better in
terms of inventory turnover?
a. 2017 c. neither A and B
b. 2018 d. none of the Above

32. Illumination Entertainment’s return on assets slightly increased from 8.03% in 2017 to
9.46% in 2018. Which of the following best describes this trend on Illumination
Entertainment’s return on investment?
a. This indicates a favorable movement on the ROI of Illumination Entertainment.
b. Illumination Entertainment is poorly managing its assets due to an increase in return on
assets.
c. both A and B are correct.
d. none of the Above.

33. Which of the following statements is true regarding debt ratio?

a. Creditors prefer low debt ratio.
b. Most lenders prefer to have high leverage.
c. Debt ratio reflects the percentage of total liabilities that are financed with equity or by
the creditors.
d. None of the Above

34. Which of the following is true regarding receivable turnover?

a. Normally, a very low receivable turnover is a favorable indicator of a firm’s solvency
status.
b. Generally, a high receivable turnover indicates a favorable liquidity status for the
firm.
c. both A and B are correct.
d. None of the above

35. A business can raise money from the following activities or sources, except which?
a. owners c. investors
b. operations d. decisions

36. Which of the following is considered an investment decision?

a. A financial manager deciding to source 10% of the needed funds from outside sources.
b. The financial manager allocating 30% of the extra money to stocks and bonds.
c. The financial manager approving the marketing department’s proposed 15,000.00
budget.
d. none of the above
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37. It is a depository institution in which the depositors are also the memberborrowers.
a. cooperative bank
b. rural bank
c. savings and loan association
d. trust companies

44. Which of the following is not performed in making a forecast or projection?

a. The sale projection is estimated and prepared.
b. The marketing and administrative expenses are estimated.
c. Additional requirements are determined.
d. none of the above

45. This refers to the initial step in making the financial projection.
a. Preparation of the sales forecast
b. Computation and preparation of the production schedule
c. Preparation of the projected financial statements
d. none of the above

46. Which of the following is not reflected in the production schedule?

a. direct labor cost
b. desired inventory level
c. number of units and the cost of materials
d. none of the above

47. This refers to the amount of income returned to the owners.

a. net income c. profit
b. dividends d. none of the above

48. This refers to costs incurred in producing a product that cannot be classified as direct
materials and direct labor costs.
a. manufacturing overhead costs
b. variable costs
c. indirect labor
d. none of the above

49. Which of the following is true regarding the relationship between sales and assets?
a. There is a direct relationship between the sales volume and the requirement of
assets.
b. An increase in expected sales volume will result in a decrease in assets.
c. Both A and B are true
d. None of the above
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50. Which of the following refers to the ratio of earnings invested back to the business?
a. dividend payout ratio c) liquidity ratio
b. retention ratio d) none of the above

51. This refers to accounts payable and accruals incurred by the business because of an increase
in assets other than property, plant, and equipment.
a. spontaneous liability c) spontaneous equity
b. spontaneous assets d) none of the above

52. This conveys the ultimate goal of the organization.

a. vision c) objectives
b. mission d) none of the above

53. The factors that highly influence the result of the projection include other marketing
information, except which of the following?
a. environmental analysis
b. consumer buying behavior
c. projected financial statements
d. all of the above

54. It refers to the process or act of preparing a financial budget.

a. planning c) financing
b. budgeting d) none of the above

55. This presents the ways of achieving the goals and objectives of the business organization in
quantitative forms.
a. plan c) budget
b. finance d) none of the above

56. Which of the following is addressed in preparing a budget?

a) Who are involved in the budget preparation?
b) What period is covered by the budget?
c) What type of budget is prepared?
d) all of the above

57. Which of the following is not a functional area of a business?

a. marketing division c) general services division
b. finance division d) none of the above

58. This provides the financial requirements of all departments for one year.
a. short-term budget c) strategic budget
b. intermediate budget d) none of the above
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59. This budget is anchored on programs of each functional area of the business.
a. short-term budget c) strategic budget
b. medium-term budget d) none of the above

60. This budget is anchored on the vision-mission of the business.

a. short-term budget c) long-term budget
b. intermediate budget d) none of the above

61. This is a type of budget that incorporates the major expenditures for plant and machineries
a. fixed budget c) cash budget
b. capital budget d) operating budget

62. This type of budget that reflects the sales and production budgets.
a. fixed budget c) cash budget
b. capital expenditures d) operating budget
63. Which of the following is not included in the formulation of a financial budget?
a. budgeted sources and uses of funds
b. cash budget
c. budgeted balance sheet
d. capital budget
64. In accounting, working capital refers to which of the following?
a) excess of current assets over current liabilities
b) financial resources that support the daily operations of a business c) current
assets
d) none of the above
65. In finance, working capital refers to which of the following?
a) excess of current assets over current liabilities
b) financial resources that support the daily operations of a business c) current
assets
d) none of the above
66. Which of the following includes a well-defined working capital policy?
a) policy on the level of current assets
b) policy on financing the current assets
c) both A and B
d) none of the above

67. Which of the following is not considered in the process of evaluating the level of current
assets to be maintained? a) nature of the business
b) current industry practices
c) types of items produced or sold
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d) none of the above
68. It refers to the allocation of resources of the business between current and non-current assets.
a. financing policy c) equity policy
 b. investment policy d) none of the above
69. Which of the following policy is adopted by a business when it is maintains a high level of
working capital?
a. conservative current asset policy
b. aggressive current asset policy
c. moderate current asset policy
d. none of the above
70. Which of the following policy is being adopted by a business when the expected level of
current assets is not too high or too low?
a) conservative current asset policy
b) aggressive current asset policy
c) moderate current asset policy
d) none of the above

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 Table of Contents

Introduction 2

2
Subject Description
3
Learning Competencies
3
Pre-Assessment
15
Lesson 1: Understanding Finance
28
Lesson 2: Financial Institution, Instruments and Markets
48
Lesson 3: Preparation of Financial Statements.
Lesson 4: Analysis of Financial Statements: Traditional 78
Approaches

References 104

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 LESSON 1. Understanding Finance
Time frame: First Week

Performance Standard:

The learners define finance, describe who are responsible for financial
management within an organization, discuss the primary activities of the financial
manager and how the financial manager helps in achieving the goal of the organization.

Specific Objectives:

At the end of the lesson, learners are expected to:

1. define finance;
2. identify the different areas of finance;
3. discuss finance in a business organization;
4. describe the functions of a finance officer; and

In your everyday lives, you need the knowledge of handling your money to
a void unnecessary expenses. As a student, you need to budget your money
well to avoid shortage of your allowance. You need to prioritize what is
important to you. Today, you are facing the challenges brought about by the
pandemic. This requires you to manage your scarce resources which is your
money efficiently and effectively. In the future, you will be managing a business,
and even your own future family which requires the knowledge of finance.

5. state the qualifications of a finance officer.

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 LET’S TRY THIS!

Instruction:

Please answer the following questions:

1. How much is your daily allowance? If not given daily, how much is your average
allowance per day?
Note: An allowance is money that is given to someone, usually on a regular basis, in order to
help him/her pay for the things that he/she needs. (Collins Dictionary, 2020)

2. Encircle all the items you spend on. List the description and the peso amount spent.
a. Fare (if commuting)
b. Food
c. School supplies (ball pen, notebook, paper, etc.)
d. Cell phone load
e. School activities
f. Typing expenses/project

3. Compute for the balance of your allowance by deducting the expenses you have listed
from your daily allowance.

4. a) If the answer in Question #3 is positive, what do you do with the money left?
b) If the answer is negative, where do you get additional money?

A B

Lesson 1 is about understanding finance. In Let’s Try This, you have determined how you
manage your allowance which is the start of learning finance. As a wise student, you should
spend your money by prioritizing your needs such as school related expenses like projects,
papers, and typing expenses rather than spending on your wants such as cell phone load,
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cosmetics, junk foods, and movies. You must consider saving your money and be conscious on
the consequences of your spending behavior so that you will not have problems in as far as
managing your financial resources is concerned.
As we go along in this subject, we will encounter varied
problems which you will understand in depth as you study
Business Finance.

What is Finance?

The American Heritage Desk Dictionary defines finance as the management of money,
banking, investments, and credit. It is also defined as a science of management of money and
other assets. This definition suggests that finance is directly related to money or to a business
activity that primarily deals with money transaction (Aduana, N. 2017).

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Both a Science and an Art

FINANCE AS A SCIENCE FINANCE AS AN ART

Money related choices are The diverse financial services

made based on financial continue to alter and create as
statements. the operations of the
business organization ended
up more complicated.

The financial statements present

relevant, factual, and true
information about the financial
performance of a business.
environment over time. The financial practices do
The pieces of data contained within
the financial explanation are
not manufactured
or displayed without solid premise.
The utilization
of truthful data in budgetary choices
and activities underscores
that finance is a science.
The financial practices do not remain static but
become adaptive to changes in the business
not remain static but become adaptive to
changes in the business environment over time.
The business operations change parallel
to the changes happening in the
business community. The practice of
finance is, therefore, related to the
changes in business operations.

Bookkeeping is a craftsmanship of recording commerce exchanges and bargains with the

planning of monetary articulation. The recording process follows the Philippine Financial
Reporting Standards (PFRSs) which is in accordance with the international standards. The
financial statements, the final product of the whole accounting process, provide useful
information to finance.
Accounting is considered as the language of both business and finance.

System, Structure and Process

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 The term system connotes that the financial activities of the business are properly
coordinated with the whole structure. A clear financial procedure directs all the human resources
of the business towards the attainment of the ultimate objective (Aduana,2017).
Through the proper application of the system, structure, and process, nothing in the financial
sphere of the business happens by chance or accident. Every financial activity has a purpose.

Management, Allocation and Utilization

Management implies the efficient handling of business resources, particularly those that
are financial in nature. Allocation connotes the wise distribution of financial resources to the
different functional areas, the proper assignment of funds between current and non-current
assets, and the correct sourcing of funds based on the concept of risk and return (Aduana, 2017).

Budgetary assets that are legitimately overseen, designated, and utilized essentially
impact the money related execution of the commerce.

Financial Resources, Investments, and Expenditures

Financial resources refer to the funds of a business which are provided by the owner or
by the creditors (Aduana, 2017).

Money related ventures are assets that are anticipated to supply salary and accomplish
appreciation or development of the trade.

The financial expenditures of a business may cover the operating expenditure and the capital
expenditures. Operating expenditures are period costs that include business expenses such as
salaries, electricity and water, travelling expenses, and the like. Capital expenditures involve the
acquisition or construction of buildings, machinery, processing plant and land.

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 Financial management focuses on capital
budgeting decision or investment decision on
the procurement of resources and
comparing financing plot.

Capital market is an area of business finance that

studies the distinctive budgetary educate and
their capacities that give help to both private and
public borrowers of funds. It also includes t he study
of the cost of borrowing the funds such as interest
and other financing charges.

Financial investments include business decisions

about the value and price of stocks and bonds,
portfolio analysis, market analysis, security analysis,
and beha viour of investors. (Aduana, N. 2017).

Business Finance is an area of finance that

center on the dealing
with and administration of budgetary assets
of a commerce organization. The three
major division of business finance are
financial management, capital mar ket, and

Personal Finance is a sub -category of private

finance which is directed towards the
administration of individual assets of a person.
The income of the individual is sources from
compensation, exercise of profession or business
income as a sole proprietor. Income is allocated
based on the individual’s personal needs such
as household expenses, education,
hospitalization, and acquisition of personal and
real properties.

Private Finance is the

administration of monetar
Public Finance is the
y assets management of
assignment of
financial resources of
government salary
private individuals, non -
generated from either
governmental taxation or borrowings or the
organizations, and private government expenditures on
organizations in the approved national and
accordance with the local appropriation or
prescribed financial budget. Public Finance is
po licy and priority of the

AREAS OF
FINANCE

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Finance in a business entity

In business organizations, finance has elevated its status as one functional area. In a typical
arrangement of a business organization, four functional divisions are involved:

1. production and 2.general

operation division administrative

3. finance division 4. marketing division

Within large corporate entities, the finance department is led by the vice president for
finance, although in medium or small organizations, the general designation of the head of
finance department is a comptroller or a finance officer.
Several business organizations pursue an organization of two major divisions below the
president or chief executive officer. These are the operating division and the finance division.
The operating division holds the marketing, production and operation, and human
resource functions. It is typically headed by the chief operating officer (COO). The finance
division alternatively, is headed by the chief finance officer (CFO) and handles the accounting
and treasure functions.

Functions of a Finance Officer

The finance officer plays a critical role in the entire business organization. He or she acts
as the cautious financial traffic officer to approximately every business transaction with financial
concerns. The finance officer is as well expected to be the “shock absorber” of budgetary
requests and requirements of other functional units of the company (Aduana, 2017).

The finance officer is greatly engaged in building decisions for the business to achieve its
objectives at the most favorable level. His or her decision-making functions are generally
classified into three:

FUNCTIONS OF FINANCE OFFICER

• financial decisions which affect the
Operating Decisions
regular operating activities of a
business
• supply direct solution to the concerns of
the functional areas
of the firm such as
manufacturing, marketing,
purchasing, and the likes.
• deal with choosing small and large
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Investment Decisions projects with a number of investment
opportunities.
• decisively evaluate various projects in
terms of return of investment and
expected cash flow. Nevertheless,
investment decisions are made simply
when
investment opportunities appear.
Financing Decisions
• deal with increasing or acquiring funds
from external sources and not from the
normal results of the business operation

• made when the business requires

borrowing money

Qualifications of a Finance Officer

The delicate position taken by a chief finance officer in a company together with the extremely
technical activities essential to the role primarily dictates the strict requirements for the positions.

The chief finance officer must have the following qualifications.

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 LET’S APPLY THIS!

Story Telling:

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 Write a short story about the pictures given on the next page. The story should be based
on Lesson 1 and should be original.

In this activity, you can see how finance is embedded in the different aspects of an
organization and how it plays in an individual’s life.

LET’S DO THIS!

Answer the following questions briefly.

1. As an ABM student, how can you apply finance in your daily life.

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 2. In personal finance, cite the allocation of income of your parents based on your needs
in terms of percentage.

3. Among the three types of financial decisions, which one is important for you? Why?

4. Discuss the finance officer’s need for understanding the other functional areas of
business.

5. If you are given a chance to be a finance officer in the future, how can you establish a
favorable relationship with financial institutions?

These are the important points you need to remember:

• Finance is considered a science and an art.

• Finance is broadly categorized into two: private finance and public

finance.
• Private finance is subdivided into business finance and personal
finance.
LET’S REMEMBER!
• Business finance is further subdivided into the following areas:

financial management, capital market, financial investment.

• The four functional divisions in a business organization are production

and operation division, general administrative or human resource division,
finance division, and marketing division
• The functions of a finance officer are operating decisions,
investing decisions, and financing decisions.

• The chief finance officer should be knowledgeable in accounting,

economics, marketing, and operation and has a 25
good communication and interpersonal skills.
 LET’S SEE
WHAT YOU HAVE LEARNED

Instruction: Write on the space provided what you have learned in Lesson 1.

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