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Subject Code: BFINMAX

Subject Title: Financial Management
Subject Description: This course provides an introduction to financial management and finance;
cash flows and financial analysis. Topics also include cash flows
estimation; operating and financial leverage; financial planning and
forecasting; managing working capital, cash and marketable securities
management and accounts receivable and inventory management.
No. of Units: 3
Class Schedule: ACT103: Synchronous: Saturday 7:00 am – 10:00 am
Asynchronous: Saturday 10:00 am – 11:00 am
ACT101: Synchronous: Saturday 11:00 am – 2:00 pm
Asynchronous: Saturday 2:00 pm – 3:00 pm
ACT102: Synchronous: Saturday 3:00 pm – 6:00 pm
Asynchronous: Saturday 6:00 pm – 7:00 pm

Course Learning Outcomes:

At the end of this course, the student will be able to:
1. Gain substantial knowledge and information on financial management that will help students in
seeking a career in the field of finance.
2. Have a strong background on the management of working capital.
3. Apply effective and efficient financial management in a given business organization.
4. Integrate and assimilate financial management and accounting principles into meaningful
application through real-life case problem analysis
5. Identify and relate well with financial management and accounting principles, issues and
practices surrounding the finance profession.

About the Instructor:

PROF. MICHAEL ANGELO M. MANAYAO, CPA, MBA cand.
• Master in Business Administration – Far Eastern University (Candidate)
• Graduated from Baliwag Polytechnic College (Cum Laude) – Batch 2018
• Member, PICPA Bulacan

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
MODULE 2 – BUSINESS ORGANIZATION

I. Learning Outcomes
The learners are expected to be able to:
1. Explain the basic legal forms of business organization.
2. Know the advantages and disadvantages of adopting the sole proprietorship, partnership and
corporation forms of business organization.
3. Understand the importance of business trend.

II. Content

The Organization of the Business Firm

The business firm is an entity designed to organize raw materials, labor, and machines with the goal of
producing goods/services. Firms
1. Purchase productive resources from households and other firms,
2. Transform them into a different commodity, and
3. Sell the transformed product or service to consumers.

For business firms engaged in retail or trading activities, transforming purchased goods into a different
commodity does not necessarily take place.

Business firms can be organized in one of three ways: as a proprietorship, a partnership or a corporation.
The structure chosen determines how the owners share the risks and liabilities of the firm and how they
participate in making decisions.

Legal Forms of Business Organization

PROPRIETORSHIP
A sole proprietorship is a business owned by a single person who has complete control over business
decisions. This individual owns all the firm’s assets and is responsible for all its liabilities. More
businesses are sole proprietorship than any form of business organization. From a legal point of view,
the owner of a proprietorship is not separable from the business and is personally liable for all debts of
the business. From an accounting prospective, however, the business is an entity separate from the owner
(proprietor). Therefore, the financial statements of the business present only those assets and liabilities
pertaining to the business.

Advantages Disadvantages
1. Ease of entry and exit 1. Unlimited liability
2. Full ownership and control 2. Limitations in raising capital
3. Tax savings 3. Lack of continuity

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(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
 4. Few government regulations

Therefore, the proprietorship may be an ideal form of business organization when the following
conditions exist:
➢ The anticipated risk is minimum and adequately covered by insurance.
➢ The owner is either unable or unwilling to maintain the necessary organizational documents and tax
returns of more complicated business entities.
➢ The business does not require extensive borrowing.

PARTNERSHIP
A partnership is a legal arrangement in which two or more persons agree to contribute capital or services
to the business and divide the profits or losses that may be derived therefrom. Partnership may operate
under varying degrees of formality.

Partnership may be either general or limited.

A general partnership is one in which each partner has unlimited liability for the debts incurred by the
business. General partners usually manage the firm and may enter into contractual obligations on the
firm’s behalf. Profits and asset ownership may be divided in any way agreed upon by the partners.

A limited partnership is one containing one or more general partners and one or more limited partners.
The personal liability of a general partner for the firm’s debt is unlimited while the personal liability of
limited partners is limited to their investment. Limited partners cannot be active in management.

Advantages Disadvantages
1. Ease of formation 1. Unlimited liability
2. Additional sources of capital 2. Lack of continuity
3. Management base 3. Difficulty of transferring ownership
4. Tax implication 4. Limitations in raising capital

CORPORATION
A corporation is an artificial being created by law and is a legal entity separate and distinct from its
owners. This legal entity may own assets, borrow money and engage in other business entities without
directly involving the owners. In many corporations, owners who are also called shareholders do not
directly manage the firm. Instead, they select managers designated as the Board of Directors to run the
firm for them. The Board of Directors is authorized to act in the corporation’s behalf.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
The incorporation process is initiated by filing the Articles of Incorporation and other requirements with
the Securities and Exchange Commission (SEC). The Articles of Incorporation includes among others
the following:
• Incorporators
• Name of the corporation
• Purpose of the corporation
• Capital stock
• Authorized shares

After the corporation is legally formed, it will then issue its capital stock. Ownership of this stock is
evidenced by a stock certificate. The corporate bylaws which are rules that govern the internal
management of the company are established by the board of directors and approved by the shareholders.
These bylaws may be amended or extended from time to time by shareholder.

Advantages Disadvantages
1. Limited liability 1. Time and cost of formation
2. Unlimited life 2. Regulation
3. Ease in transferring ownership 3. Taxes
4. Ability to raise capital

Important Business Trends

Four important business trends should be noted, namely:
1. Increased globalization of business
2. Ever improving information technology (IT)
3. Corporate governance
4. Outsourcing

Increased globalization of business

Most large corporations operate on a global basis and with good reason: investing abroad has proven to
be highly profitable. Decisions to build plants and produce goods abroad are also motivated by the
attraction of low-cost labor and the easy transfer of highly efficient technology that gives competitive
price advantages to foreign operations.

As domestic demand reaches maturity, the search for new markets leads corporation to invest and sell
abroad. The trend to develop a presence abroad is also motivated by a desire to hedge against risks.
Because economic activity differs from one country to the next, diversification abroad tends to dampen
the overall fluctuations of sales and earnings, thus reducing the risk exposure of a corporation.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
Fortunately, the advent of new financial instruments, including financial derivatives, such as futures and
swap agreements, provides managers with new tools for hedging and minimizing foreign risks.

Ever improving information technology (IT)

Improvements in IT are spurring globalization, and they are changing financial management as it is
practiced in North America, Europe, Southeast Asia and elsewhere. Firms are collecting massive data
and using them takes much of the guesswork out of financial decisions.

Corporate governance
This trend relates to the way the top managers operate and interface with stakeholders. At the same time,
the Securities and Exchange Commission (SEC) which has jurisdiction over the shareholders and the
information must be given has made easier to activist shareholders to changes the way things are done
within firm.

Outsourcing
Outsourcing occurs when domestic firms invest and produce goods in foreign countries or when these
firms choose to rely on imparts rather than build domestic plans and produce these goods domestically.
Low labor-cost countries, like China, open up new investment opportunities for corporations from the
United States, Europe and Middle East. Growing competitive pressures are forcing domestic firms to
invest abroad or to import cheap foreign products.

III. Activity – Supplementary

1. One of the major disadvantages of a sole proprietorship is

a. That there is unlimited liability to the owner.
b. The simplicity of decision making.
c. Low organizational costs.
d. Low operating costs.

2. The partnership form of organization

a. Avoids the double taxation of earnings and dividends found in the corporate form of
organization.
b. Usually provides limited liability to the partners.
c. Has unlimited life.
d. Simplifies decision making.

3. A corporation is
a. Owned by stockholders who enjoy the privilege of limited liability.
b. Easily divisible between owners.
c. A separate legal entity with perpetual life.

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 d. All of the above.

4. An association of two or more persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves is called
a. Sole proprietorship.
b. Partnership.
c. Corporation.
d. Cooperative.

5. A partnership whose members are liable to the whole extend of their separate properties.
a. Particular partnership.
b. Universal partnership.
c. General partnership.
d. Limited partnership.

6. Which of the following is true when comparing corporations and partnerships?

a. Partnership entities provide for taxes at the same rates used by corporations.
b. In theory, partnerships are more able to attract capital.
c. Like corporations, partnership have an infinite life.
d. Unlike shareholders, general partners may have liability beyond their capital balances.

7. A limited partnership
a. Must have at least two general partners.
b. Is illegal in most states.
c. Must have at least one general partner.
d. None of the above.

IV. Activity/Assessment – Visit the MS Teams

V. References
Cabrera, M. and Cabrera, G. (2019) Financial Management, Manila: GIC Enterprises and Co.
Inc.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]