3. Financial management

Exercise 1. Expand on the statements:

1. A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain (Frost).

1. Money spent on the brain, is never spent in vain (Proverb).

2. The first wealth is health (Emerson).

Exercise 2. Read the following international words and guess their meaning:

financial director

operation president

firm capital

decade management

economic structure

inflation risk

optimist analysis

pessimist theory

international corporation

balance integrate

Exercise 3. Choose from the text the words with the following suffixes and place them in the alphabetical order. Check your answer at the end of the chapter:

• al;

• tion;

• ment;

Exercise 4. Read the following words and word combinations. Make up the sentences with them:

1. manager's contribution to … – вклад менеджера в …;

2. unpredictable economic turns – непредсказуемые повороты в экономике;

3. to maintain the viability of … – поддерживать жизнеспособность …;

4. to manage the affairs of … – управлять делами …;

5. to understand relationships between…– понимать взаимоотношения между;

6. structure for decision-making – структура для принятия решения;

7. pricing theory – теория ценообразования;

8. disposal income – доход на душу населения;

9. gross national product – валовой национальный продукт;

10. income statement – отчет о доходах;

11. balance sheet – балансовый отчет;

12. statement of cash flows – отчет о движении наличности.

Exercise 5. Read the title of the text and predict the main ideas of the text.

Exercise 6. Read the text and find out:

1. Why is the financial manager’s contribution to the firm’s activity great today?

2. Why is the field of finance closely related to economics and accounting?

3. What does economics provide?

4. Why is accounting language of finance?

5. What should a financial manager know to be the best one.

Financial management

The financial manager’s contribution to directing the operations of the firm has become increasingly critical in the last decade. In a time of unpredictable economic turns, fluctuating interest rates, inflation and disinflation, painful shortage and excesses, and extreme optimism and pessimism, the chief financial officer must maintain the financial viability of the firm. As financial markets become more international, the chief financial officer must also manage the global financial affairs of the firm. The board of directors and the president look to the financial division to provide a precious resource-capital management and to manage it in an efficient and profitable way.

The field of finance is closely connected to economics and accounting, and financial managers need to have an understanding of the relationships between these fields. Economics provides a structure for decision making in such areas as risk analysis, pricing theory through supply and demand relationships, comparative return analysis, and many other important areas. Economics also provides the broad picture of the economic environment in which corporations are continually making decisions.

Economic variables, such as gross national product, industrial production, disposable income, unemployment, inflation, interest rates and taxes, must fit into the financial manager’s decision model and be applied correctly.

Accounting is sometimes said to be the language of finance in that it provides financial data through income statements, balance sheets, and the statement of cash flows. The financial manager must know how to interpret and use these statements in the allocation of the firm’s financial resources to generate the best return possible in the long run. Finance is the link that integrates economic theory with the numbers of accounting, and all corporate managers – whether in the area of production, sales, research, marketing, management, or long-run strategic planning – must know what it means to assess the financial performance of the firm.

Today, the emphasis of financial management has also sharply focused on risk-return relationships and the maximization of return for a given level of risk.

Exercise 7. Read the text once again and find key words in every passage.

Exercise 8. Read every passage once again and express its contents in one sentence.

Exercise 9. Read the text and find out what financial matters Maria Cole is busy with during the day.

Maria Cole runs a small jewelry store. Her days are filled with "Money matters". The first one is selling goods to her customers. Most pay cash. Maria helps them to choose the goods, takes money and puts in her cash register, giving the customer a receipt. At the end of each day she empties the register drawer and compares the actual cash balance with the total shown by the register. She gives the cash to the office staff who fill out a bank deposit form and do the banking.

At the end of each week Maria checks her stock level and orders new goods if it is necessary. She can buy them on a credit basis and she has to keep records of all orders placed to ensure the goods are received and paid for.

She regularly checks the catalogues to be sure she has the most popular goods.

At the end of every month Maria checks a series of reports, prepared by her accountant, such as profit and loss report, cash flow statement and a list of amounts owing to suppliers.

Exercise 10. Image that you are a finance manager of a company producing dairy products. Describe your working day:

I n the morning:

I n the afternoon:

I n the evening:

Exercise 11. Read the text and tell your partner about:

1. different types of costs;

б) how to calculate break – even point.