INVESTMENTS

1. INVESTMENTS 2BFM Dimaculangan, Marion Garniel, Jhonmar Mendoza, Nigel Miranda, Boden Santos, Radley Venezuela, Jhal

2. Investments • It is putting money into an asset with the expectation of capital appreciation, dividends, and interest earnings. • Purchasing an asset that will generate income or appreciate in the future and that can be sold at a higher cost. • Buying of a financial product or any valued item with an anticipation that positive returns will be received in the future. 

3. Investment Instruments Financial Instruments: • Equities • Mutual Funds • Bonds • Deposits • Cash Equivalents Non-financial Instruments • Real Estate • Gold

4. Equities • Type of security that represents the ownership in a company • Investing in equities is a good long-term investment option as the returns on equities over a long time horizon are generally higher than most other investment avenues. • However, along with the possibility of greater returns comes greater risk

5. Mutual Funds • A collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you. • The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself.

6. Bonds • Fixed income instruments which are issued for the purpose of raising capital • Both private entities, such as companies, financial institutions, and the central or state government and other government institutions use this instrument as a means of garnering funds • Bonds issued by the Government carry the lowest level of risk but could deliver fair returns

7. Deposits • Investing in bank or post-office deposits is a very common way of securing surplus funds. These instruments are at the low end of the risk-return spectrum

8. Cash Equivalents • These are relatively safe and highly liquid investment options. Treasury bills and money market funds are cash equivalents

9. Real Estate • With the ever-increasing cost of land, real estate has come up as a profitable investment proposition

10. Gold • The 'yellow metal' is a preferred investment option, particularly when markets are volatile • Beyond physical gold, a number of products which derive their value from the price of gold are available for investment • These include gold futures and gold exchange traded funds

11. Why do companies invest? • There are purposes why companies generate cash from their operations. A. Investing Cash in Current Operations B. Investing Cash in Temporary Investments C. Investing Cash in Long-term Investments

12. A. Investing Cash in Current Operations • Cash is always used to support the current operating activities of a company. It can be used to replace equipments or to buy new and modern and productive equipments. • Cash can also be reinvested in the company to expand its current operations like McDonald’s wherein it has different branches all over the world and if they want to have more branches, they need to put up additional stores nationwide.

13. A. Investing Cash in Current Operations • To obtain the current level of operations, they also use cash to pay: - Expenses - Suppliers of merchandise & other assets - Interest to creditors - Dividends to stockholders

14. B. Investing Cash in Temporary Investments • Some companies may have excess cash that is not needed at a certain period of time in its operations. This is often the case when the company has a seasonal operating cycle. • For example, a significant portion of the annual merchandise sales of a resorts near white-sand beach occurs during summer holiday season. As a result, these resorts often experience a large increase in cash during summer which is not needed until rainy season.

15. B. Investing Cash in Temporary Investments • Most companies invest these cash in temporary investments or in securities such as: Debt Securities– notes & bonds that pay interest and have a fixed maturity date. Equity Securities – preferred & common stocks that represent ownership in a company and don’t have fixed maturity date.

16. B. Investing Cash in Temporary Investments • These temporary investments are reported in the Current Assets of the balance sheet of the company. The primary objective of investing in temporary investments is to: -Earn interest revenue -Receive dividends -Realize gains from increases in the market price of the securities

17. B. Investing Cash in Temporary Investments • Most companies invest these cash in temporary investments or in securities such as: Debt Securities – notes & bonds that pay interest and have a fixed maturity date. Equity Securities – preferred & common stocks that represent ownership in a company and don’t have fixed maturity date.

18. C. Investing Cash in Long-Term Investments • A company may invest cash in the debt or capital of another company as a long-term investment. It may be held for the same investment objective as temporary investments. However, long-term often involve the purchase of a significant portion of the stock of another company.

19. C. Investing Cash in Long-Term Investments • Long-term investments usually have a strategic purposes such as: 1. Reduction of Costs: When one company buys another company, the combined company may be able to reduce administrative expenses. 2. Replacement of Management: If the purchased company has been mismanaged, the acquiring company may replace the company’s management and, thus, improve operations and profits. 3. Expansions: The acquiring company may purchase a company because it has a complementary product line, territory or customer base. The new-combined company may be able to serve customers better than the two companies could separately. 4. Integration: A company may integrate operations by acquiring a supplier or customer.

20. VALUING & REPORTING iNVESTMENTS • Debt and equity securities are financial assets that are often traded on public exchange like NYSE. As a result, their market value can be observed and, thus, objectively determined. • For this reason, GAAP allow some debt and equity securities to be valued in the accounting records and financial statements at their fair market value. In contrast, the GAAP requires tangible assets to be valued and reported at their net book values.

21. VALUING & REPORTING iNVESTMENTS Different Securities: • Held-for-Trading • Available-for-Sale • Held-to-Maturity

22. Held-for-Trading • aka Trading Securities • Nature: Trading Gains • Valued at: Fair Value/Market-to-Market • Changes in Valuation: Unrealized gain/loss is reported on I/S as other income(loss) • Effect: Profit & Loss and Capital (Retained Earnings) • On Balance Sheet: Current Asset

23. Available-for-Sale • Nature: Neither HFT or HTM • Valuation: Fair Value/Market-to-Market • Changes in Valuation: Accumulated unrealized gain/loss is reported in stockholders’ equity on the B/S • Effect: only in CAPITAL • On Balance Sheet: Either as a current or noncurrent asset, depending on management’s interest

24. Held-to-Maturity • Nature: Collect Interests/Principals • Valuation: Amortized Cost • Changes in Valuation: Premium or discount amortization is reported as part of interest revenue on the I/S • *THERE’S NO EFFECT ON FAIR VALUE/MARKET-TO-MARKET ENTRY • On Balance Sheet: Either as a current or noncurrent asset, depending on remaining term to maturity