Lesson 6 FINANCING A BUSINESS
I. Read and memorize the following words, word. combinations and word-groups:
internal funds — внутрішні борги external funds — зовнішні борги
e.g. Since the funds come from within the firm they are
described as internal funds. The rest must come from outside, or external funds.
to meet one's expenses — покривати чиїсь витрати
e.g. As a firm sells its products or services, it receives
money which it uses to meet its expenses.
depreciation — знецінення, зниження цін
to wear out — зношуватися, спрацьовуватися
e.g. Depreciation represents the cost of replacing assets
that wear out.
to cover the cost of smth. — покрити вартість чого-
небудь
e.g. Businesses use internal funds to cover the cost of
depreciation.
short-term loans — короткострокова позика
e.g. Short-term loans are used to finance the everyday costs of doing business.
long-term loans — довгострокова позика
e.g. Long-term loans mature (come due) in more than a
year.
the principal — запозичена сума
e.g, Creditors expect to receive interest and the return of
the principal at the end of a specific period of time.
common stock — спільні акції preferred stock — привілейовані акції
e.g. All corporations issue common stock; some, however,
also issue preferred stock.
to have voting rights — мати право голосу
e.g. Preferred stockholders do not have voting rights.
security exchange — фондова біржа
e.g, Security exchange is a market where brokers meet to
buy and sell stocks and bonds for their customers. default — невиплата, невиконання договору
e.g. There is some risk of default on the bonds of even the strongest corporations.
mutual funds — спільні фонди
e.g. Mutual funds are corporations that sell stock and use
the proceeds to invest or speculate in the securities markets, balance sheet — балансовий звіт income statement — звіт про прибуток
e.g. Two of the most important pieces of information
contained in every prospectus and annual report are the balance sheet and the income statement, assets — актив (балансу)
liabilities — пасив (балансу), борги, заборгованість
e.g. For every business the things that it owns are assets,
and those it owes are liabilities.
net worth — вартість майна за винятком зобов'язань,
власний капітал підприємства
e.g. The difference between assets and liabilities is its net
worth.
II. Give English equivalents of the following:
покрити вартість чого-небудь фондова біржа
пасив (балансу) привілейовані акції балансовий звіт актив (балансу)
довгострокова позика внутрішні борги
невиплата мати право голосу запозичена сума
III. Fill in the blanks with appropriate words:
| 1. ... is the difference between assets and liabilities. 2. Similarly, firms need ... to begin operation, to meet their day-to-day expenses and to expand. 3. ... charge purchases to their accounts for payment at a later date. 4. ... is money that will be used for a year or more. 5. Many large corporations raise long-term capital through the sale of their . . . . 6. Corporations sell stocks and bonds as a way of raising ... . 7. ... is a market where brokers meet to buy and sell stocks and bonds for their customers. 8. Those who buy stocks to share in the profits and growth of a corporation over a long period of time are described as ... | «investors» capital money net worth customers bonds a security exchange long-term financing |
IV. Read and translate the text:
Most of the money used by business comes from the sale of its products and services. Since these funds come from within the firm they are described as internal funds. The rest must come from outside, or external funds.
As a firm sells its products or services, it receives money, which it uses to meet its expenses. One of these expenses, depreciation, represents the cost of replacing assets (like tools, machinery, and buildings) that wear out. Typically, businesses use internal funds to cover the cost of depreciation.
Business loans are generally classified as either short-term or long-term loans. For short-term loans, the principal (the amount borrowed) must be repaid within one year. Longterm loans mature (come due) in more than a year.
Short-term loans are used to finance the everyday costs of doing business, such as payrolls, raw materials and merchandise. Long-term loans are more likely to be used to purchase equipment, buildings and other high cost items.
All corporations issue common stock; some, however, also issue preferred stock. Unlike common stockholders, preferred stockholders usually do not have voting rights.
A security exchange is a market where brokers meet to buy and sell stocks and bonds for their customers.
The largest of the securities exchanges are the New York Stock Exchange and the American Stock Exchange.
There is some risk of default (failure to pay interest or principal) on the bonds of even the strongest corporations. For this reason many people invest in mutual funds. Mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the security markets.
Two of the most important pieces of information contained in every prospectus and annual report are the balance sheet and the income statement- The balance sheet summarizes a corporation's assets, what it owns; its liabilities, what it owes; and its net worth, the difference between the two sums at a given time. The income statement summarizes a firm's revenues, costs, and the difference between the two (the profit or loss) over a period of time (pp. 61—70).
V. Answer the following questions:
1. Where does most of the money used by business comb from?
2. What do we call interna! funds?
3. What does depreciation represent?
4. What remains after paying expenses?
5. How do you understand the term «external funds»?
6. What can the firm do to get more money?
7. What rights have common stockholders?
8. What is the difference between common and preferred stockholders?
9. What is the reason for investing in mutual funds?
10. How do you read a balance sheet and income statement?
VI. Define the terms:
| internal funds common stock balance sheet the principal | preferred stock depreciation mutual funds to have voting rights |
VII. Translate into English:
1. Найбільша кількість грошей, що використовується бізнесом, надходить з продажу продукції та різних послуг. 2. Оскільки фірма продає товари або послуги, вона одержує гроші та використовує їх з метою покриття своїх ви
трат. 3. Бізнесові позики зазвичай класифікуються як довгострокові та короткострокові. 4. Короткострокові позики використовуються для фінансування повсякденних вартостей для створення фірми (справи), таких як платіжні відомості, сировина, товари. 5. Довгострокові позики існують для купівлі обладнання, будинків та інших цінних предметів. 6. Фондова біржа — це ринок, де зустрічаються посередники для купівлі й продажу акцій та облігацій своїм клієнтам.
7. Чи існує певний ризик невиплати за облігаціями най- сильніших корпорацій? 8. На відміну від власників спільних акцій, власники привілейованих акцій не мають права голосу. 9. Спільні фонди — це корпорації, що купують акції та використовують виручені суми для інвестування або гри на фондових біржах. 10. Звіт про прибуток підбиває підсумки річного прибутку, вартості фірми та різниці між прибут
ком І збитком.
VIII. Read and dramatize the following dialogue:
T.: Do you know anything about John Say and his works?
S.: As far as I remember, an admirer of Adam Smith, John
Baptiste Say's «Treatise on Political Economy» (1803) helped to introduce «The Wealth of Nations» to his native France. In the course of explaining Smith's theories and the role of markets in satisfying human wants, his statement came to be known as Say's Law.
T.: So, according to Say's Law, «production creates its own demand», in other words, people produce and sell goods and services in order to buy the things they want.
S.: No doubt. And if buyers no longer want certain products, sellers will stop producing them and shift into something that is in demand.
T.: Now, if only those goods and services actually in demand are produced, and the income received from the sale of those products is ultimately used by managers and workers to buy the things they want and need, it follows that supply created its own demand.
S.: Can we say in other words: there could be no such thing as overproduction, or long-term unemployment?
T.: Temporary overproduction and unemployment, yes. Long term, never. When was Say's Law put to rest?
S.: The onset of the Great Depression of the 1930-s with its widespread unemployment and overproduction that dragged on for years, finally put Say's Law to rest.
T.: Although some economists continued to agree with Say that «in the long run», the market would bring supply, demand and unemployment into balance, most agreed with the British economist J.M. Keynes who pointed out that «in the long run we are all dead».
S.: By that he meant pressing problems require immediate attention. Besides they couldn't wait for long-term solutions.
IX. Make up your own dialogue using the following expressions:
| to meet one's expenses | depreciation |
| to cover the cost of smth | long-term loans |
| the principal | to have voting rights |
| security exchange | mutual funds |
| overproduction | to be in demand |
X. Make the following sentences passive:
M o d e l : A firm will use this amount of money to meet its expenses next week.
This amount of money will be used to meet expenses of a firm next week.
1. This business will use internal funds to cover the cost of depreciation. 2. A firm will sell its products and services soon.
3. He will use short-loan terms to finance the everyday costs
of doing his own business tomorrow morning. 4. The firms will produce these goods and services which are in demand in two days. 5. The couple will buy the things they want and need in this supermarket tomorrow,
XI. Translate the verbs in brackets in English using them in the necessary tense-form:
1. The principal (буде виплачено) by this business within a year. 2. When the funds come from within the firm they (будуть описані) as internal funds. 3. Long-term loans (будуть використані) to purchase equipment, buildings, etc. 4. In this case demand (буде створений) by supply. 5. Stock (буде продано) by mutual funds and the proceeds (буде використано) to invest or speculate in the security markets.
XII. Translate into English:
Коли борги надходитимуть із зовнішніх джерел, вони будуть описані як зовнішні борги. 2. Для чого будуть використані короткострокові та довгострокові позики? 3. Відсотки та запозичена сума будуть отримані кредиторами наприкінці терміну. 4. Акції будуть продані корпораціями для вико
ристання грошей на фондових біржах.
XIII. Communicative situations:
1. Imagine that you have a great idea for a new popcorn popper. Explain how you would go about raising capital to develop your idea, manufacture and market your product?
2. There is a saying, «Neither a borrower nor a lender be». Explain why you agree or disagree with this advice with regard to business in our market economy.
3. Scanning the financial section of the newspaper, you notice that the price-earnings ratio of excellent bank stock range from 5 to 7r while other company stocks had P-E rations over 100.
How do you explain this wide variation?