VIII. Insert the following expressions in the gaps in the text and translate it into Ukrainian.

In the red; annual report; pre-tax loss; accounting standards; hemorrhaging red ink; exceptional profit or loss; makes a profit; bottom line; red ink; pre-tax profit; net profit; bleeding red ink; profit and loss account; makes a loss; accounting rules; gross profit.

A firm reports its performance in a particular period in its results. Results for a particular year are shown in the company’s …(1). This contains, among other things, a …(2).

In theory, if a company makes more money that it spends, it …(3). If not, it …(4). But it’s possible for a company to show a profit for a particular period because of the way it presents its activities under the … (5) or …(6) of one country, and a loss under the rules of another.

A … (7) or a …(8) is one before tax is calculated. An …(9) is for something that is normally repeated, for example the sale of a subsidiary company or the cost of restructuring. A company’s …(10) is before charges like these are taken away; its …(11) is afterwards. The final figure for profit or loss is what people call informally the …(12). This is what they really worry about!

If a company is making a loss, commentators may say that it is …(13). They may also use expressions with …(14), saying, for example, that a company is ...(15) or …(16).

IX. Match up the following British and American terms.

1. creditors a. amortization

2. debtors b. accounts payable

3. depreciation c. accounts receivable

4. overheads d. inventory

5. profit and loss account e. stockholder

6. stock(s) f. income statement

7. shareholder g. overhead

8. share premium h. paid-in-surplus.

9. retained and undistributed i. undivided profit

profits

X. Task 1. Read the text and say what the best way to make the meaning of a company’s ratios clear is.

Once you understand how a set of accounts is constructed, you need to be able to analyse them to find out what they really disclose. Interpreting and analysing financial statements will enable you, as a manager, to compare the performance of your company this year with last year, to compare your company with its competitors, and to detect weaknesses which you can improve.

Absolute figures in financial statements do not tell you much. For example, to be told that Retail Stores Plc made £196 million profits before tax is not a useful piece of information unless it is related to, say, the turnover which produced the profit or to the capital employed in the group.

Ratio analysis is a useful tool with which to interpret financial accounts. But for ratios to be meaningful, they must be compared with equivalent ratios calculated for previous years and with those of the industry in which the company is positioned. Industrial ratios are produced by a variety of clearing houses for industrial statistics.

Ratios reduce the amount of data contained in financial statements to workable form. This aim is defeated if too many are calculated. You must learn which combination of ratios will be appropriate to your needs.

Ratios lead you to ask the right questions; however they seldom provide conclusive answers.

A financial ratio is a number that shows the relationship between two elements of a firms financial statements. Many of these ratios can be formed, but only about a dozen or so have real meaning. The information required to form these ratios is found in the balance sheet and the profit and loss accounts.

Liquidity

Your first concern as a manager is to ensure the short-run survival of the company. Is the company able to meet its short-term obligations?

Current ratio =	Current assets
	Current liabilities

Most commentators prefer to see a company with more current assets than current liabilities. But in the retail sector, most companies work on cash sales (i.e. no debtors) which makes for healthy liquidity.

Quick ratio =	Current assets – Stocks
	Current liabilities

In some manufacturing companies stocks are too high and contain obsolete, unsellable items. To provide a more rigorous test of the company’s ability to meet its short-term obligations, this item is removed from the calculation.

Capital structure

The net assets of the company can be financed by a mixture of owners’ equity and long-term debt. Gearing ratios analyse this mixture by measuring the contributions of shareholders against the funds provided by the lenders of loan capital. Retail Stores Plc has no long-term debt; but the significant ratio is:

Long-term debt	x 100
Net assets

The profit and loss account provides another useful angle on the capital structure. Is there healthy margin of safety in the profits to meet the fixed interest payments on long-term debt? An overgeared company may show signs of running out of profit to pay this fixed burden.

Times interest earned =	Profit before taxes
	Interest charges

To be sure that their dividend is safe, shareholders will want profits compared with the dividend payable:

Dividend cover =	Profit for the financial year
	Dividend payable

Activity and efficiency

The ratios showing stock turnover and average collection period help managers and outsiders to judge how effectively a company manages its assets. The figure of sales is compared with the investment in different assets. The following rapid stock turnover is typical of the retail sector. Manufacturing companies tend to show much slower turnover.

Stock turnover =	Sales
	Stock

The following rapid collection period is typical of the retail sector which tends to avoid substantial credit sales. Manufacturing companies’ collection period can often creep up to 60 days and more.

Average collection period =	Debtors
	Sales per day

Similarly, managers should aim to extend the period of credit taken to pay suppliers. Too long a period, however, will lead to poor trade relations with suppliers, and may even be an indication of cash flow problems.

Profitability

This ratio shows management’s use of the recourses under its control.

Profit margin =	Profit before taxes	x 100
	Sales

Extraordinary items are excluded from this ratio because they do not represent normal operating profit.

Return on total assets =	Profit before taxes	x 100
	Total assets

Profit is closely related to the assets employed by the company. Some analysts calculate the return on specific assets, e.g. inventory.

Return on owners’ equity =	Profit before taxes	x 100
	Owners’ equity

If a quoted company fails to earn a decent return, the share price will fall and prejudice chances of securing additional capital or long-term debt on beneficial terms.

Current ratio – коефіціент поточної ліквідності

Quick ratio (acid-test ratio) – коефіцієнт швидкої ліквідності

Gearing (leverage US) ratios – коефіцієнти платоспроможності

Times interest earned – коефіцієнт забезпеченості процентів по кредиту

Dividend cover – співвідношення величини дивідентів до прибутку корпорації

Stock turnover – коефіцієнт оборотності матеріальних запасів

Average collection period – середній термін покриття дебіторської заборгованості

Profit margin - рентабельність

Return on total assets – фондовіддача (один із коефіцієнті рентабельності)

Return on owners’ equity – коефіцієнт віддачі власного капіталу.

Task 2. From what the text says, identify the groups of people for whom each ratio would be most useful. Some ratios are useful for more than one group. The following possible groups are suggested but add others in your answers if you can think of more.

Possible groups of users

Shareholders of the company

A company’s debtors

Investment analysts

Employees of the company

Management of the company

A company’s creditors

Rival companies

Ratio	Groups of users
1. Liquidity
2. Capital structure
3. Activity and efficiency
4. Profitability