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Lesson 7. Corporate finance.

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Lesson 7.

Corporate finance.

Corporations need financing for the purchase of assets and the payment of expenses. The corporations can issue shares in exchange for money or property. Sometimes it is called as equity funding. The holders of the shares form the ownership of the company. Each share is represented by a stock certificate, which is negotiable. It means that one buy and sell it. The value of a share is determined by the net assets divided by the total number of shares outstanding. The value of the share also depends on the success of the company. The greater the success, the more value the shares have.

A corporation can also get capital by borrowing. It is called debt funding. If a corporation borrows money, they give notes or bonds. They are also negotiable. But the interest has to be paid out whether business is profitable or not.

When running the corporation, management must consider both the outflow and inflow of capital. The outflow is formed by the purchase of inventory and supplies, payment of salaries. The inflow is formed by the sale of goods and services. In the long run the inflow must be greater than the outflow. It results in a profit. In addition, a company must deduct its costs, expenses, losses on bad debts, interest on borrowed capital and other items. It helps to determine if the financial management has been profitable. The amount of risk involved is also an important factor. It determines the fund raising and it shows if a particular corporation is a good investment.

purchase , ,

payment of expenses

property ,

equity funding ()

debt funding

holders of the shares

stock certificate

negotiable , , ,

net assets

bond ,

note

interest ,

to pay out

to run a corporation

inflow ()

outflow ()

inventory - ,

supplies

debt

goods

Comprehension questions.

1. Why do all corporations need financing?

2. What does equity funding mean?

3. What does debt funding mean?

4. How is the value of a share determined?

5. What activities produce an inflow and outflow of capital?

6. What can happen if an enterprise has a greater outflow of capital that an inflow?

7. Why is the risk involved an important factor in determining fund raising?

Vocabulary practice

Choose the necessary word and put it in the sentence.

1. funding is a financing formed by borrowing. | 1. equity

2. They have borrowed much money and they have to pay a big . | 2. negotiable

3. Financing by shares is called funding. | 3. interest

4. That is a very profitable deal, for that purpose we need extra . | 4. inventory

5. You can sell your shares and . They are . | 5. funding 6. inflow

6. The current assets of a company usually include cash and . | 7. bond

7. As a result of this deal we ill have greater than outflow. | 8. debt

a stockbroker

if it concerns smth -

loan ,

partial owner

Annual Report

to pay dividends

long-term investment

to make a profit on the sale

Exercise 3. Answer the questions.

1. What kind of funding is preferable: equity or debt?

2. What shares of what enterprises of your town would you buy? Explain why.

3. Imagine that your business is going to get capital funds by borrowing. What bond interest would you charge? Explain why.

4. What should you do to produce more inflow of capital?

5. How can you calculate the net assets of your enterprise?

6. What traits of character does a stockbroker need?

Exercise 4. Translate into English (. 49).

1. .

2. . .

3. , , .

4. .

5. .

6. .

7. SONY.

8. .

9. , .


60 .



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