Financing a Business.

Financial markets play an important role in a market economy by channeling money from savers to businesses that use it to invest in new capital resources. Businesses use the financial markets as a source for capital investment funds by borrowing, selling new shares of owner­ship* and by saving the money themselves.

To borrow money, corporations and government often sell long-term debts called bonds. Bondholders lend money and are called creditors. They may receive interest payments during the term of the bond and the face value at maturity. Businesses can also borrow for short periods of time by using trade credit, loans from financial institutions, and direct loans from other companies. Small start-up businesses have unique financing options like savings from family and friends, loans from banks, and venture capital.

Corporations sell stock or equity ownership to raise funds in the financial markets. The stock­holders gain ownership rights when they buy common and preferred stock. All corporations issue common stock with dividends paid at the discretion of the board of directors.

Businesses can also gain funding for new capital resources by retaining some of their profit for reinvestment. Newly established firms often use this strategy to increase the company's future earnings potential, so that future dividend payments are larger and the stock price appreciates.

New issues of stocks are called initial public offerings (IPOs) and are financed in the primary market. After buying the shares, investors can trade them in the secondary market, which we call the stock market. The stock market has organized exchanges like the New York Stock Exchange and American Stock Exchange and electronic trading markets like NASDAQ. An agency of the federal government, the Securities and Exchange Commission oversees the market for stocks, bonds and other securities.

Investors and others interested in the financial condition of a firm can learn much from its balance sheet and income statement. The balance sheet is like a snapshot describing a firm's assets (what it owns) and its liabilities (what it owes). The difference between these is the firm*H net worth. The income statement, like a movie, shows revenue and expenses for a peri­od of time. The difference between these is the profit.

Topical Vocabulary:

To save – сберегать, экономить

Source – источник

To borrow – брать взаймы

Shares – акции

Long-term debt – долгосрочный долг

Bond – долговое обязательство

To lend – давать взаймы

To pay interest – выплачивать проценты

Loan – заем, ссуда, кредит

Stock – имущество, фонд, акции (ценные бумаги)

Stockholder – акционер

Common stock – обычные (простые) акции

Preferred stock – привилегированные акции

Issue of stock – выпуск акций

Stock exchange – фондовая биржа

Securities – ценные бумаги

Balance sheet – балансовая ведомость

Income statement – декларация о доходах

Assets – активы

Liabilities – денежные обязательства, долги; пассив

Net worth - чистая стоимость компании

Revenue - доход