FINALS: INVESTMENT AND PORTFOLIO MANAGEMENT

INDUSTRY ANALYSIS
➔ Industry analysis is a market assessment tool used by business and entrepreneurs to show how a company or potential company
compares to others in its industry or niche.
➔ Industry analysis is a marketing process that provides statistics about the market potential of business products and services.
➔ Industry analysis is a function of businesses today completed by business owners to assess the different economic scenarios
in the business environment.
➔ This analysis helps businesses understand how these economic scenario directly or indirectly influence the goal of the company and
these can also be used to develop the competitive advantage of a business in the marketplace.

Features of Industry Analysis

01. Summarize the nature of the industry
○ It includes growth patterns, fluctuations related to economic performance, and income projections. It also includes
marketing strategies and trends on operations and management.
02. Provide a forecast of your industry
○ Compile economic data and industry predictions at different time intervals (5, 10, 20 years). Be sure to cite sources. The
size of the industry will determine how much information you will be able to find about a particular industry. Define if it
is new and emerging, growing, maturing or declining.
03. Identify government regulation that affect the industry
○ Include any recent laws pertaining to your industry, and any licenses or authorizations you would need to conduct business
in your target market. This section may include information about fees and costs involved.
04. Explain your unique position within the industry
○ List the leading companies in the industry, and compile an overview of data of your direct and indirect competition. This
will help you communicate your unique value proposition.

An Industry analysis of Service Industry

● The service industry is made up of professions that deliver services, or intangible
goods, to consumers.
○ Examples of this include accounting, education, health care and
hospitality.
● Unlike the manufacturing sector, which produces physical merchandise that is
sold to the public, the service industry does not create anything.
● The individuals who make up this industry are hired simply to perform tasks. The
Service Industry creates a large percentage of employment within the country.

Industry Comparative Advantage

Competitive advantage of an industry refers to factors that allow a company to produce
goods or services at a least cost than other companies. It allows a company to
generate more sales and superior margins compared to its market rivals.
● They provide better benefits to consumers at a lower price with greater value.
● Examples of Competitive advantage: Highly skilled manpower, access to the
source of raw materials that are restricted to competitors, unique geographical
location, use of a new technology, least cost of production, brand image recognition.
○ Competitive advantage is one of the company’s goals in today’s
world that defines the success of a business.

Intensity of industry rivalry

➢ The number of participants in the industry and their respective market shares
are a direct representation of the competitiveness of the industry. Product
differentiation reduces the intensity of competition, government restrictions, labor
unions can also be a barrier to entry.

Threats of Potential Entrant

● Free entry of a new entrant to a particular industry, companies face a constant risk of new competitors. If new entry is difficult
the company, of whichever industry enjoys competitive advantage and reaps the benefit for a longer period.
● Bargaining Power of Suppliers
○ If the industry relies on a limited number of suppliers, these suppliers have a considerable amount of bargaining power,
however it affects small businesses as it affects the price of the final product as the cost of production is expensive.

How to do an industry analysis?

01. Identify your industry and provide a brief overview
02. Summarize the nature of the industry
03. Provide a forecast of your industry
04. Identify government regulations that affect your industry
05. Explain your unique position within the industry
06. List potential limitations and risk
07. Talk to people
Questions designed to identify the benefits and limitations of industry analysis
1. Is there a difference between the returns for alternative industries during specific time periods?
2. Will industries that perform well in one period continue to perform well in the future?
3. Is the performance of firms within an industry consistent over time?
4. Is there a difference in the risk for different industries
5. Does the risk for individual industries vary, or does it remain relatively constant over time?

Cross-sectional industry performance

In this, researchers compared the performance of various industries during a specific period of time. If the performance is similar among
different industries, this would indicate that industry analysis is not necessary.
● For example, assume that during 2019, the aggregate share market would experienced a rate of return of 10% and the return for
all industries is between 9 to 11 percent , then industry analysis will not be necessary with an average of 10%

Industry Performance over time

Does industry that perform well in one time period would perform well in subsequent time periods, or outperform the aggregate
market in the later time period?
Investigators found almost no association in industry performance over sequential rising and falling of markets.
It imply that past performance alone does not project future industry performance, variables that affects industry performance change
over time.
● Performance of the companies within an industry
If all firms within industry performed consistently during a specific period of time, industry analysis need not to do.
Given a profitable industry means that all the shares in that industry would do well

Process analysis is the exercise of analyzing processes to identify opportunities to

improve the way they operate. Using process analysis, companies can evaluate their
business processes and pinpoint what is and isn't working within their operations.

The Business Cycle and Industry

Two basic forms:
I. Cyclical changes that arise from the ups and downs of the business cycle
II. Structural changes that occur when the economy is undergoing a major change
in how it functions. For example, excess labor or capital may exist in some sectors,
whereas shortages of labor and capital exist elsewhere

Factors that influences business cycle

Inflation
● Higher inflation is generally negative for shares because it causes higher market interest rates
and more uncertainty about future prices and costs, and it harms firms that cannot pass through
cost increases.
● There are industries that benefit from inflation, natural resource industries benefit if their
production costs do not rise with inflation, because their output will likely sell at higher prices.
● Industries with high operating leverage because many of their cost are fixed in nominal whereas
revenues increase with inflation.
Interest Rate
● Interest rates: Financial institutions, including banks, are adversely impacted by higher rates because they find it difficult to pass
higher interest rates to customers.
● High interest harms the housing and construction industry.
● High interest rates also benefit retirees whose income is
dependent on interest income
International economics
● Both domestic and international events affect the value of
the dollar. A weaker dollar helps domestic industries because
their exports become comparatively cheaper in overseas
market, while the goods of foreign competitors become more
expensive in Australia.
Consumer sentiment
● Consumer spending has a large impact on the economy.
Optimistic consumers are more willing to spend and borrow
money for expensive goods, such as houses, cars, new clothes
and furniture.
● Performance of consumer cyclical industries will be affected by
changes in consumer sentiment and by consumers’ willingness
and ability to borrow and spend money.
Stages of industry life cycle
01. Embryonic - an industry just beginning to develop, characterized by slow growth, high prices, low volumes, a substantial need for
investment, and a high risk of failure.
02. Growth: characterized by rapidly increasing demand, improving profitability, falling prices, and relatively low competition (though
a threat of new competitors is generally at its highest point in this stage).
03. Shakeout: characterized by slowing growth, intense competition, declining profitability, and a focus on cost reduction.
04. Mature: characterized by little or no growth, industry consolidation, and high barriers to entry.
05. Decline: characterized by negative growth, excess capacity, and intense competition.

COMPANY ANALYSIS
Company Analysis and Share Valuation
● Two decisions of an investor to his equity based on company analysis:
01. First, after analyzing the economy and share markets for several countries, she has to decide the percentage of the
portfolio allocated to ordinary shares and to alternative countries.
02. Second,after analyzing various industries, she has to identify the industry that offer above-average risk adjusted
performance over her investment

Growth companies are those that consistently grow sales and earnings at a rate that is faster than the overall company.
In contrast, growth companies are firms that have the ability and opportunity to consistently make investments that yield rates of return
greater than the firm’s required rate of return.
● For example, a firm has a weighted average cost of capital of 10 % and can earn 15% of investment, the firm’s sales and earnings
show grow faster than those firms facing similar risk and overall economy.

Defensive Companies and shares

● Defensive companies are those whose future earnings are likely to withstand an economic downturn.
○ Companies that has low risk and not excessive financial risk. Typical examples are fast food chains and supermarkets-firms
that supply basic consumer necessities.
● Defensive shares rate of return is not expected to decline during an overall market decline, or it is expected to decline less than
the overall market.

Firms that survive the pandemic

1. Food manufacturing industry
○ One beneficiary of the essential food play was Po family-led Century Pacific Food Inc. (CNPF), which grew its
third-quarter net profit by 15 percent year-on-year to P1.06 billion as consumers kept their stock of shelf-stable seafood,
meat and milk products during the prolonged coronavirus pandemic. This brought CNPF’s net profit for the nine-month
period to P3.3 billion, up by 26 percent from the level seen in the same period last year.
2. Grocery Stores
○ The index representative is Puregold Price Club, whose net profit rose by 10.9 percent year-on-year to P5.05 billion.
Consolidated net sales increased by 10.1 percent year-on-year to P121.14 billion, driven by sustained growth in sales from
old and new stores opened during the period.
3. Telecommunications and Broadband services
○ PLDT’s nine -month attributable net profit rose by 23 percent year-on-year to P19.69 billion on the back of revenues that
rose by 7 percent to P133.22 billion. For the third quarter alone, net profit surged to P7.41 billion from P3.8 billion a year
ago.
○ Converge, a fast-growing fiber internet and service provider, grew its nine-month net profit by 57.6 percent year-on-year
to P2.19 billion due to continued improvement in subscriber count and higher average revenue per user.

Cyclical Companies and shares

Cyclical company’s sales and earnings will be heavily influenced by aggregate business
activity. Such companies will outperform other firm’s during economic expansions and
seriously underperform during economic contractions.

➢ Economic expansion when real GDP grows faster from a through to a within two
or subsequent quarter. It happens where there is a rise in employment and
consumer confidence.
➢ Economic contraction is a sustained decrease in economic activity. It is
characterized by decrease DGP, industrial production, and employment. There is a
decline in the overall economy
➢ It includes firms in the steel,

Speculative companies
● Speculative companies is now whose assets involve great risk but has also a possibility of great gain. An example is oil
exploration.
● Speculative shares is one that is overpriced, leading a probability that when the market will adjust the share price to its true
value, it will experience either low or possibly negative rates of return.
Growth rate analysis
Compare firms in the same industry that has equal risk assumptions.
● The market expects Company A to grow at an annual total rate of
18 percent for about 5.5 years, after which it will grow at Company B’s rate
of 13.5 percent. If you believe the implied duration for growth at 18 percent
is too long, you will prefer B. If you believe the estimated duration is
reasonable or low, you will recommend Company A.

Three Method of Performing Industry

Competitive Forces Model (Porter’s Five Broad Factors Analysis (PEST Analysis) SWOT Analysis
Forces) 01. Political - specific policies and
regulations related to things like
taxes, environmental regulation,
tariffs, trade policies, labor laws,
ease of doing business, and overall
political stability.
02. Economic - The economic forces
that have an impact include
inflation, exchange rates (FX),
interest rates, GDP growth rates,
conditions in the capital markets
(ability to access capital), etc.
03. Social - The social impact on an
industry refers to trends among
people and includes things such as
population growth, demographics
(age, gender, etc.), and trends in
behavior such as health, fashion,
and social movements.
04. Technological - actors such as
advancements and developments
that change the way a business
operates and the ways in which
people live their lives (e.g., the
advent of the internet).

FINANCIAL DISTRESS AND REHABILITATION

Financial distress is a condition in which a company or individual cannot generate revenue or income because it is unable to meet or
cannot pay its financial obligations.
➔ Due to high fixed costs, illiquid assets, or revenues sensitive to economic downturns.
➔ Difficult to secure financing
➔ Their market value dropping significantly, customers cutting back orders, and suppliers changing their terms of delivery.
➔ Ignoring the signs of financial distress can be devastating for a company, bankruptcy may be the only option.
● Financial statement can help investors and others determine its financial health.
● Negative cash flow under the cash flow statements is one indicator of financial distress.
● This could be caused by a big difference between cash payments and receivables, high interest payments, and a drop in
working capital.

Signs of Financial Distress

01. Poor profits may indicate a company is financially unhealthy.
○ Struggling to break even indicates a business cannot sustain itself from internal funds and needs to raise capital
externally.
○ This raises the company’s business risk and lowers its creditworthiness with lenders, suppliers, investors, and banks.
○ Limiting access to funds typically results in a company (or individual) failing.
02. Poor sales growth or decline indicates the market is not positively receiving a company’s products or services based on its
business model.
○ When extreme marketing activities result in no growth, the market may not be satisfied with the offerings, and the
company may close down.
 ○ Likewise, if a company offers poor quality products or services, consumers start buying from competitors, eventually
forcing a business to close its doors.
03. When debtors take too much time paying their debts to the company, cash flow may be severely stretched.
○ The business or individual may be unable to pay its own liabilities.
○ The risk is especially enhanced when a company has one or two major customers.

How to Remedy Financial Distress

1. Review their business plans. This should include both its operations and performance in the market, as well as setting up a target
date to accomplish all its goals.
2. Cut costs. This may include cutting staff or even cutting back on management incentives, which can often be costly to a business'
bottom line.
3. Restructuring their debts. Under this process, companies that cannot meet their obligations can renegotiate their debts and
change their repayment terms in order to improve their liquidity. By restructuring, they can continue operations.

14 Types of Market Condition

01. Interest Rates
○ It is fundamental that interest rate directly affects the return on investment for all types of industries.
○ When interest rates are low, firms tend to expand its capacity for profitability.
02. Asset prices
○ The business cycle is a signal to the enthusiasm of an investor for a particular investment at a point I time.
○ Prices of assets tends to go through a boom cycle ( dramatic increase known as bubbles, and bust cycle ( dramatic
decrease known as crashes)
03. Inflation and Deflation
○ During deflation, buyers tend to delay purchases as prices tend to declines but this is disadvantageous to a firm,
excessive inflations harms the fixed income earner as the value of their money tends to decline while.
○ Both inflation and deflation is not healthy to the economy.
04. Capacity
○ Industries go through the period when demand is higher than supply, they tend to rush to their production capacity
leading to the adverse effect when supply exceeds demand making any businesses unprofitable.
05. Inventory
○ Excess capacity of an industry can lead to a high inventory level, products tend to be sold at a discounted price that may
make an industry unprofitable.
06. Competition
○ Industries compete in terms of promotion, pricing, availability and product improvement. Since most industries are highly
competitive they need to establish their competitive advantage over the others.
07. Business Models
○ Industry should develop a new business model that may represent an opportunity or challenge towards the trend. Example
is offering a short term rentals (staycation) for apartment instead of a hotel as a place for short vacation.

08. Consumer demand

○ Firms should consider the changing taste and preferences among consumers so with their needs and perceptions.
09. Business Demand
○ Aggressive investment to improve capacity of firm through technology, however, technology change rapidly that may
result to the cutbacks of production.
○ Example is the aluminum casing of toothpaste before has change to plastic tube, machines used becomes dormant and
need to use another machines for the plastic tube, that was when the Lamoiyan Company was birth.
○ Also the laundry soap powder to liquid laundry soap.
10. Employment
○ When general employment levels are high it is far easier to find a job and more difficult to hire employees, as such
wages will increase.
11. Procurement
○ The environment for procuring materials, parts and equipment may short in supply with rising prices and a reverse of
price downfall when supply is excessive.
12. Taxes and Regulation
○ Business taxes and regulations might be a burdensome to investors and small business are discourage to operate.
13. Stability
○ Political and government stability is conducive to business and investment.
14. Financing
○ when an economy goes to a period where defaults are low and liquidity is high, banks are encourages me to lend money
as businesses can afford to pay their loans, however, when defaults are high banks tightens their lending operation.
 FINALS: BANKING AND FINANCIAL INSTITUTION
The Financial System
The term Financial Environment refers to the financial sector or financial system of a country. It comprises various financial institutions,
instruments, policies and services concerning the financial sector.
Its Meaning…
➔ The financial system of a country means a set of financial arrangements by which the savings in the economy are
mobilized for investment in productive assets.
➔ The financial system deals with all types of finance, agricultural, industrial, developmental and governmental finance.
➔ The suppliers and users of funds are a part of the financial system.
➔ Thus, the financial system is concerned with borrowing and lending of funds or the demand and supply of funds of all
individuals, institutions, companies and the Government.

Constituents of the Financial System

➔ Financial Markets: Provide facilities for raising long term and short term funds.
➔ Financial Institutions: Serve as intermediaries between borrowers and lenders of funds.
➔ Financial Instruments: Are used to raise funds in the financial markets
➔ Financial Services: Services offered by various financial institutions.

Financial Intermediation
➔ Act simultaneously as barrowers and lenders.
➔ Actually barrows from one group in society, the surplus unit and lends to others, the deficit spending unit, thus placing itself at a
risk should some of the loans be defaulted.

Functions of Financial Intermediaries

Asset Storage
● Commercial banks provide safe storage for both cash (notes and coins), as
well as precious metals such as gold and silver. Depositors are issued deposit cards,
deposit slips, checks, and credit cards that they can use to access their funds. The
bank also provides depositors with records of withdrawals, deposits, and direct
payments they have authorized. To ensure the depositors’ funds are safe, PDIC
(Philippine Depositors Insurance Corporation) requires deposit-taking financial
intermediaries to insure the funds deposited with them.

Providing loans
● Intermediaries advance the loans at interest, some of which they pay the depositors whose funds have been used. The remaining
amount of interest is retained as profits. Borrowers undergo screening to determine their creditworthiness and their ability to
repay the loan.
Investments
● The types of investments range from stocks to real estate, Treasury bills, and financial derivatives. Sometimes, intermediaries
invest their clients’ funds and pay them an annual interest for a pre-agreed period of time. Apart from managing client funds, they
also provide investment and financial advice to help them choose ideal investments.

Claims of Financial Intermediation

Primary Claims
● The money market instruments, governmental securities, commercial paper, corporate and municipal bonds, mortgages and
common stocks.
Secondary Claims
● Banks, life insurance companies, mutual funds issue claims of their own

Risks and Costs Without Financial Intermediation

Adverse Selection
● This is the tendency for those persons with the highest probability of experiencing financial problems to seek out and be granted
loans.
Moral Hazard
● This arises because the debt contract allows the barrower to keep any and all returns that exceed the fixed payments called for in
the loan agreement.

Benefits of Intermediation
01. Lower costs
Financial intermediaries can help savers and borrowers find the best products for their needs, which can save time and money. They can
also handle paperwork efficiently through economies of scale.

02. Reduced risk

Financial intermediaries can help savers and borrowers spread risk across multiple products and investments. For example, a saver can
choose multiple mutual funds that invest in different stocks.

03. Reduced fraud

Financial intermediaries can monitor transactions across multiple parties to look for signs of fraud.
 04. Access to specialized services
Financial intermediaries can offer specialized services for different types of borrowers and lenders. For example, they can offer loan
products for students and small businesses, as well as packages for large borrowers.

05. Central market

Financial intermediaries create a central market for financial transactions, which can be cost-efficient for clients.

06. Contact person

Financial intermediaries provide a contact person who can help clients find solutions to their financial needs.

Examples of Financial Intermediaries

I. Bank
A bank is a financial intermediary that is licensed to accept deposits from the public and create credit products for borrowers. Banks are
highly regulated by governments, due to the role they play in economic stability. They are also subject to minimum capital requirements
based on a set of international standards known as the Basel Accords.

II. Credit union

A credit union is a type of bank that is member-owned. It operates on the principle of helping members access credit at competitive rates.
Unlike banks, credit unions are established to serve their members and not necessarily for profit purposes. Credit unions claim to provide a
wide variety of loan and saving products at a relatively lower price than other financial institutions offer. They are governed by a board of
directors, who are elected by the members.

III. Mutual funds

Mutual funds pool savings from individual investors. They are managed by fund managers who identify investments with the potential of
earning a high rate of return and who allocate the shareholders’ funds to the various investments. This enables individual investors to
benefit from returns that they would not have earned had they invested independently.

IV. Financial advisors

A financial advisor is an intermediary who provides financial services to clients. In most countries, financial advisors must undergo special
training and obtain licenses before they can offer consultancy services. In the U.S., the Financial Industry Regulatory Authority provides the
series 65 or 66 licenses for investment professionals, including financial advisors.
 FINALS: PUBLIC FINANCE
HANDOUT MODULE WK14: APPROACHES TO TAX EQUITY - BENEFITS PRINCIPLE AND ITS APPLICATIONS
● Many energy-generating assets, from solar to wind power, are financed using a form of investment called tax equity. Here’s how
tax equity financing comes into play, both from an investment and project management perspective.

What is tax equity?

Tax equity offers a form of project financing, using a combination of project-generated cash flow and federal tax benefits. These benefits
include both tax deductions and tax credits. For solar energy projects equity tax would come from benefits including:
➔ Investment Tax Credit (ITC)
➔ Interest deductions
➔ Accelerated depreciation deductions
For example, imagine an investor puts money into a new solar energy project in exchange for the financial incentive of federal tax credits.
As the solar project gets up and running, it would also generate positive cash flow returns which could be put back into the investment’s
financing. The investor not only makes money from these returns but can also reduce income taxes due to credits and deductions.

While traditional financing includes owner equity, tax equity applies to those types of projects that qualify for federal tax incentives. This
is why it usually goes hand in hand with renewable energy developments. In fact, within the United States alone it’s estimated that tax
equity makes up roughly half of all renewable energy investments.

How does tax equity work?

Projects are funded in several ways.
➔ Developer equity: developers pay for project costs not covered by outside investors and lenders
➔ Debt financing: the developer secures construction financing from lenders
➔ Tax equity: between 40% and 60% of the project costs are covered by investors in exchange for tax credits and cash returns

Tax equity is considered a passive investment, with the investor banking on receiving a target internal rate of return based on current
federal tax benefits. Investors might include insurance companies, corporate bodies, banks, and even wealthy individuals.

Types of equity tax benefits

When answering the question of what is tax equity and how does it work, it’s important to understand the types of tax benefits on offer.
The US government offers federal income tax benefits to subsidize renewable energy projects and hit its climate-friendly targets.
There are two main types of credits that would be of interest to a tax equity investor:
1. Investment tax credits
○ The government offers investment credits for clean energy projects. Examples of eligible projects could include things
like:
■ Fuel cells
■ Wind energy property
■ Solar equipment
■ Geothermal energy
■ Geothermal heat pump property
■ Microturbines
○ These are calculated and distributed as a percentage of the project’s total cost, available in a single payment for the
same tax year the equipment is put into operation. The amount will vary depending on the project’s year and the type of
technology. For example, for solar projects beginning construction by the end of 2021, the credit is 26% of project costs.
2. Production tax credits
○ The second type of tax incentive sure to be of interest to tax equity investors are related to production. While the
investment tax credit helps cover the costs of getting the project up and running, production tax credits are paid out over
a 10-year period from the date the project is functional. Examples of this type of investment include:
■ Wind
■ Biomass
■ Landfill gas
■ Hydropower
■ Municipal solid waste
■ Geothermal
○ The tax credit amount depends on how much energy the project produces, adjusted for inflation each year.
○ Another factor that weighs into tax benefits is the cost of depreciation. Investors receive an annual tax deduction for the
normal wear and tear associated with project-specific equipment. For renewable energy assets, some equipment qualifies
for 100% depreciation in the year it goes into service.

Tax equity financing structure

I. These income tax credits and deductions are only useful for parties that owe income tax. Developers are often structured as
corporations, which makes them ineligible to claim certain tax credits or depreciation benefits. As a result, developers enter a
partnership with tax equity investors. One example of this would be a partnership flip
II. In a partnership flip, the developer forms a partnership with the investor. The developer then donates or sells the renewable
energy project to this partnership, while the tax equity investor contributes cash. Under the terms of the partnership, the investor
receives the majority of the tax benefits and cash up to a certain fixed date, typically five years. After this date, the partnership
terms flip. The developer instead receives the bulk of the tax benefits and cash.
The bottom line
I. Tax equity financing helps fund important renewables projects, enticing investors with an attractive combination of tax savings
and cash returns. For developers, it provides a way to get new projects off the ground without resorting to debt. Yet with
numerous partnership structures to choose from, it’s important to read all terms carefully before investing.

OTHER QUESTIONS ABOUT TAX EQUITY:L

1. What is the tax equity theory?
Tax equity is the principle used to improve tax compliance. Taxpayers must feel treated fairly and get equal contributions from the
government in order to have the awareness to pay taxes.

2. What is the tax equity approach?

Tax equity offers a form of project financing, using a combination of project-generated cash flow and federal tax benefits. These benefits
include both tax deductions and tax credits. For solar energy projects equity tax would come from benefits including: Investment Tax Credit
(ITC)

3. What are the approaches to tax equity?

The ability-to-pay principle says that people should pay taxes based on how well they can shoulder the tax burden.
Vertical equity means that people who can afford to pay more in taxes should pay more in taxes.
Horizontal equity means that people with a similar ability to pay taxes should pay a similar amount of taxes.

4. What are the two important ways tax equity can be looked at?
Tax equity can be looked at in two important ways: vertical equity and horizontal equity. Vertical equity addresses how a tax affects
different families from the bottom of the income spectrum to the top—from poor to rich.

Advantages of the Benefit Principle of Taxation Equity:

● In a taxation context, equity refers to the fairness of tax distribution. It ensures that people and entities with similar income
levels are taxed similarly, and those with higher incomes are taxed relatively more.

What does this principle of equity in taxation provide?

Tax equity is the principle used to improve tax compliance. Taxpayers must feel treated fairly and get equal contributions from the
government in order to have the awareness to pay taxes. Philosophically, taxpayers must feel the benefits of the tax payments they have
made.

What is the benefit received principle of taxation in the Philippines?

If services are conducted or paid for abroad, but there are activities to be performed in the Philippines so essential that the entire service
transaction cannot be accomplished without them, the benefit-received theory applies. This means that the revenue-generating activity
actually occurs within the Philippines.Jan 23, 2024

APPLICATION OF TAX EQUITY BENEFIT

● The BIR issued Revenue Regulations (RR) No. 13-2022 changing the tax treatment of equity-based compensation. Under the
issuance, any kind of equity-based compensation is considered taxable compensation subject to the withholding tax on
compensation once exercised or availed of by the grantee-employees.Nov 23, 2022.
 FNM105: Credit and collection
Lesson 10: Shares of stock and collateral
Types of stocks

I. Common stock - ordinary shares, voting shares

○ This stock class entitles investors to generate profit thru dividends
○ They elect the company’s Board of Directors
○ They have rights to the company's assets in the liquidation event.
○ Received by founders and employees
II. Preferred stock or preference shares
○ Entitled to a regular dividend
○ This is a non-voting stock
○ They get paid first in time of dissolution and bankruptcy
○ Passive income

Can we loan stocks?

● Yes, We call it loan stock.

What do you mean by a loan stock?

Loan stock refers to shares of common stock or preferred stock that are used as a collateral to secure a loan form another party.
● Portfolio Loan stock financing

Loan stock
➔ It is an equity security used as collateral to secure a loan.
➔ When the loan stock is being used as collateral, the lender will find the highest value in shares of a business that are publicly
traded and unrestricted, these shares are easier to sell if the borrower is unable to repay the loan
➔ Lender may maintain physical control of the shares until the borrower pays off the loan.

Risks to lender
● Stock price drop
● Borrower’s default
● If the borrower defaults on the loan, the financial institution that issued the loan becomes the owner of the collateralized shares.
○ voting rights
○ Partial owner of the business.

Loan stock business

● Full-fledged business
● The financing amount is based on the value of the borrower’s securities
● implied volatility
● Credit worthiness

Loan to value ratio

A financial ratio that compares the amount of money being borrowed to the market price of the asset being purchased.

Loan-To-Value
is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage.
● Higher LTV ratios are considered higher-risk loan

Example
if you buy a home appraised at P100,000 for its appraised value, and make a P10,000 down
payment, you will borrow P70,000. What is the LTV ratio?
● if you buy a home appraised at P100,000 for its appraised value, and make a P10,000 down
payment, you will borrow P70,000.
● This results in an LTV ratio =70000 divided by 1000000% (i.e., 70,000/100,000)= 70%