Questions for Discussion:

1. What does «profit» mean in general?

2. What does it mean in business?

3. What does «profit» mean for an accountant?

4. What kind of meaning is it for an economist?

5. Why does he attach a cost to the use of retained earnings?

6. In what case can profit be obtained?

7. How could the income from sales be used?

Topic №14 «Capital and Finance»

1. In order to employ factors of production, a firm has to have finance.

2. This is usually divided into working capital and fixed capital.

3. Working capital is for purchasing single-use factors or «variable factors».

4. They are labour, raw materials, petrol, stationery, fertilizers, etc..

5. Finance for working capital can be obtained from a variety of sources: banks, trade, credit, finance companies, factor houses, tax reserves, inter-company finance, advance deposits from customers and the government.

6. Fixed capital covers factors which are used many times-factories, machines, land, lorries, etc.

7. Some finance for fixed capital is therefore required initially for advance payments on factory buildings, machinery and so on before the firm is earning revenue, though it is possible to convert fixed capital into working capital by renting buildings, hiring plant and vehicles or by leasing or buying on deferred payments through a finance company.

8. Thus many companies, especially new ones, raise capital, both working and fixed, by borrowing, by selling their shares.

9. Sometimes, when expenses are high or income is low, a firm may need temporary financing.

10. A firm may need more money than is available within it, if it’s necessary to purchase a new facility or expand an existing facility, so it must look for outside sources of financing, and usually it is a short or long-term one.

11. Short-term financing is money that will be used for one year or less and then, repaid.

12. Long-term financing is money that will be used for longer period than one year.

Questions for Discussion:

1. What is finance usually divided into?

2. What is working capital for?

3. What can finance for working capital be obtained from?

4. What factors does fixed capital cover?

5. What is some finance for fixed capital required for?

6. How is it possible to convert fixed capital into working capital?

7. How do many new companies raise capital?

Topic №15 «Sources of Unsecured Financing»

1. Unsecured financing is financing for which collateral is not required, and most short-term financing is unsecured.

2. Sources for unsecured short-term financing include trade credits, promissory notes, bank loans, commercial papers, and commercial drafts.

3. Wholesalers may provide financial aid to retailers by allowing them a period of time in which to pay for merchandise, this delayed payment, which may also be granted by manufacturers, is a form of credit known as trade credit or the open account.

4. More specifically, trade credit is a payment delay that a supplier grants to its customers.

5. A promissory note is a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date.

6. Unlike trade credit, however, promissory notes usually require the borrower to pay interest.

7. Commercial banks offer unsecured short-term loans to their customers at interest rates, that vary with each borrower’s credit rating.

8. Banks generally offer short-term loans through promissory notes.

9. A commercial paper is a short-term promissory note, issued by large corporations.

10. Corporations, issuing commercial papers, pay interest rates slightly below those charged by commercial banks.

11. Thus, issuing a commercial paper is cheaper than getting short-term financing from a bank.

12. A commercial draft is a written order requiring a customer (the drawee) to pay a specified sum of money to a supplier (the drawer) for goods or services.

13. A sight draft is a commercial draft, that is payable on demand-whenever the drawer wishes to collect, and a time draft is a commercial draft, on which a payment date is specified.