Vocabulary

1. Do you know the meaning of the following words? Try to match up each of them to its Ukrainian equivalent. Use your dictionary if necessary.

finance application to be responsible for assets management charitable retail sufficient to collect supplier to supervise to focus on treasurer controller	to charge with liaison to oversee to obtain accounting auditing to report to to aim at capital budgeting to gain equity working capital to ensure
а) бути відповідальним за б) роздрібний в) дивитися, спостерігати за г) збирати д) скарбник е) з’єднувальна ланка є) фінанси ж) наглядати, спостерігати за з) бухгалтерський облік и) доповідати, звітувати і) бухгалтер-аналітик, контролер ї) благодійний й) активи к) покладати відповідальність на л) достатній	м) одержувати, здобувати н) акціонерний капітал, власний капітал, звичайна акція о) застосування, використання п) одержувати, здобувати (прибуток) р) проведення ревізії, аудит с) забезпечувати, гарантувати т) розрахунок прибутковості капіталовкладень у) постачальник ф) оборотний капітал х) домагатися, прагнути ц) зосереджувати увагу на ч) управління, керівництво; адміністрація

Pre-reading task

Work in small groups.

Can you answer the following questions?

• What are the most important decisions a company has to make before starting or doing some business?

• What is corporate finance?

• Which managers does the Vice-President for Finance supervise?

• What is capital budgeting?

• What is capital structure?

• What is working capital?

Preface each answer with one of the following according to what is true for you:

As far as I remember … Unfortunately, I have no idea …

I would like to point out that … I am not absolutely certain, but I think …

Reading

1. Read text 6. How much of the information did your group already know?

TEXT 6

Financial activities and their management

Finance is the application of economic principles and concepts to business decision-making and problem solving. It is the function in a business responsible for acquiring funds for the firm, managing funds within the firm, and planning for the expenditure of funds on various assets.

Finances of a business enterprise need management. It is just the sphere of financial management. Financial management is the investment and financing decision making that goes on within all types of firms. The firm may be a business enterprise, such as manufacturing company, an accounting firm, an oil producer, a credit union, or a charitable organization. The small retail firm requires such decisions as where to get funds for its seasonal cash needs, selecting the appropriate level of inventory and cash on-hand, and deciding when best to expand. The large corporation needs to set its credit terms, decide where to get funds needed for expansion etc.

Any person or company starting or doing some business has three questions to answer, all connected to finance.

The first question is, “What long-term investments are necessary?” This means identifying the business to be done, and the buildings, machinery, and equipment needed to do it.

The second question is, “Where and how can the firm get long-term financing to pay for those investments?” Will the firm’s own money be sufficient? If not, will it try to interest others to invest in the business and share ownership, or will it borrow money?

The third question is, “How will the firm manage everyday financial activities?” These activities include collecting money from customer, paying suppliers, paying salaries and wages, administrative costs, etc.

The financial structure of a company is called corporate finance. The Financial Department in a company is responsible for its corporate finance.

It is known, that financial management is the responsibility of the Vice-President for Finance, who supervises the work of the Financial Department of a company.

High-level positions of a business that focus primarily on financial management typically include: Vice-President for Finance, Treasurer, Controller and Chief Financial officer. The Vice-President for Finance is charged with policy-making duties and acts as a liaison between financial manager and other management personnel. Often the Vice-President for Finance oversees the activities of the Controller and the Treasurer. The Treasurer is charged with obtaining capital for investments and investing cash in other assets of business. The Controller is charged with accounting and auditing functions and financial planning.

The Chief Financial officer is generally part of the top layer of management that reports to the Board of Directors.

All the financial activities are aimed at answering the three questions listed above. The answer to the first question is called capital budgeting. It is the process of planning and managing the firm’s long-term investments. To do that, the Financial Manager has to try to find opportunities for investments which are worth more to the firm than they cost to be acquired. That means that the amount of cash to be received as a result of an investment should be greater than its cost, i.e. greater than the amount of money spent to gain it.

The answer to the second question is found in capital structure. This structure is a mixture of long-term debt and the equity that a firm uses to finance its operations. Debt is a result of the firm borrowing money to finance its operations. Equity is the value of its property (also used as security for the financing) after deducting all the charges to which that property may be liable. The Financial Manager should decide on the suitable balance of debt and equity – what mixture of debt and equity is best for the firm. He or she should also find the least expensive sources of funding for the firm.

The working capital management is the answer to the third question. Working capital is the firm’s short-term assets - for instance, inventory. It also includes short-term liabilities, such as paying suppliers. Managing the working capital is necessary to ensure continuity of the firm’s operations without interruption. It requires a number of decisions, such as how much cash and inventory should be readily accessible at a moment’s notice, how to obtain short-term financing, etc.

Decisions made regarding any of these three basic questions of finance involve risks. That is why no firm can avoid some financial losses. But efficient financial management can bring those losses to a minimum, thus maximizing the profits.

2. Comprehension check.

1. Return to the questions in Pre-reading task.

• Which of them did you answer correctly?

• If your answers were only correct in general, formulate more specific answers.

• Which of your answers were wrong?

• What are the correct answers to those questions?

2. Work in pairs. Using the key vocabulary of the text, explain what you understand about the following:

• investments should be worth more to the firm than they cost;

• debt and equity should be balanced when financing the firm’s operations ;

• the working capital includes the firm’s short-term assets and liabilities.

c) Look at the suggested organizational chart of financial activity in a large firm, supervised by the Vice – President for Finance. Match managers ( under A) with definitions of their responsibilities ( under B).