Topic №9 «The Basis of Financial Management»

1. The basis of financial management is a financial plan, which is a plan for obtaining and using the money needed to implement an organization’s goals.

2. There must be three steps of financial planning: establishing organizational goals and objectives, budgeting for financial needs, identifying sources of funds.

3. A goal is an end state that the organization wants to achieve, and objectives are specific statements detailing what the organization intends to accomplish within a certain period of time, the first and the second ones should be realistic.

4. A budget is a financial statement that projects income and expenditures over a specified future period of time, and most firms today use one of two approaches of budgeting.

5. In the traditional approach, each new budget is based on the dollar amounts, contained in the budget for the preceding year.

6. Zero-base budgeting is a budgeting approach in which every expense must be justified in every budget.

7. As far as sources of funds are concerned, the four primary ones are sales revenue, equity capital, debt capital, and the sale of assets.

8. The first type of funding is connected with sales, and it is important that future sales generally, provide the greatest part of a firm’s financing.

9. The second type, equity capital, is money, received from the sale of shares of ownership in the business, it is used almost exclusively for long-term financing.

10. The third type of funding is debt capital, which is money obtained through loans, it may be borrowed for either short or long-term use.

11. The fourth type of funding is the sale of assets, a firm generally acquires them, because they are needed for the firm’s business operations.

12. Finally, it is important to ensure that financial plans are being implemented and to catch minor problems before they become major problems, and to establish a means of monitoring and evaluating financial performance.

Questions for Discussion:

1. What is a financial plan?

2. State the difference between goals and objectives.

3. State the meaning of the word «budget».

4. What is the difference between the traditional budgeting approach and zero-base budgeting?

5. What provides the greatest part of a firm’s financing?

6. What can you say about equity capital and debt capital?

7. What is the fourth type of funding?

Topic №10

«Allocation of Products and Resources»

1. The pure market economy, without any government control whatsoever, allocates products and resources.

2. Households and firms are connected through productive resources and goods and services.

3. They also associate with factor prices and product prices at the markets through supply and demand.

4. As to the command economy, allocation of products and resources allows the government to act as a dictator.

5. Fortunately, a community or a country does not have to make a complete choice between the two extremes: the market economy and the command economy.

6. Instead it can compromise and have mixed economy.

7. In a mixed economy three quarters of production is carried out by the private sector through the market, though subject to varying degrees of government control.

8. For the other quarter the government is directly responsible through the public sector.

9. Thus the government influences the allocation of the goods and services produced.

10. Even in the USA, a stronghold of free enterprise, it has been found necessary to control or regulate national income conditions.

11. As to Britain, it has a mixed economy today.

12. In its economic life there is a public sector with some nationalized industries and a private sector with the majority of the nation’s industries, both large and small.

Questions for Discussion:

1. What does the pure market economy, without any government control whatsoever, do?

2. What does allocation of products and resources allow, as to the command economy?

3. What can we have instead of the two extremes: the market economy and the command economy?

4. What is happening in a mixed economy?

5. How does the government influences the allocation of the goods and services produced?

6. What has been found necessary to do in the USA?

7. What are the two sectors of the British economic life?