Speak on the evolution of financial management

Study and Learn the Words:

English	English equivalents	Romanian	Russian
peak period	period during which the maximum of production is sold	perioada de vârf ale vânzărilor	период наиболее интенсивной продажи
cash flow		flux de numerar	движение платежей
promotional campaign		companie de reclamă	рекламная компания
evenly (adv)	exactly, precisely	cu precizie	с точностью
over the long run	a period during which something flows	în perioada de activitate	в период деятельности
to get smth under way	moving, advancing, making progress	a merge înante, a avansa, a progresa	прогрессировать
to raise money	to collect money	a aduna bani	собирать деньги
merger (n)	a combining of two or more companies, corporations	contopire, fuziune	слияние, обьединение
outmoded (adj)	no longer in fashion or accepted, obsolete	învechit, demodad	вышедший из моды, устаревший
fund (v)	to provide money for	a furniza mijloace băneşţi pentru	финансировать
facility (n)	building, special room, equipment,	clădire, echipament	оборудование, аппаратное обеспечение, производственные помещения
supplies (n,pl)	materials, provisions for supplying a business	resurse	ресурсы

The field of financial management is an exciting and challenging one. Students who choose to major in finance will find a wide range of rewarding job opportunities in the fields of corporate financial management, investment analysis and management, banking, real estate, insurance and the public sector. Any business – whether large or small, profit seeking or not for profit – is a financial concern and its success or failure depends in a large part on the quality of its financial decisions. Managers daily face questions like the following:

- Will a particular investment be profitable?

- Where will the funds come from to finance the investment?

- Does the firm have adequate cash or access to cash – through bank borrowing agreements, for example to meet its daily operating needs?

- What kind of credit should be granted the firm’s customers, and which customers should be given credit privileges?

- How much inventory should be held?

- How should profits be used or distributed?

The Need for Financial Management

Without financing there would be very little business. Financing gets a business started in the first place then it supports the firm’s production and marketing activities. Many firms have failed because their managers did not pay enough attention to finances. Proper financial management can ensure that:

- Financial priorities are established in accordance with organizational objectives

- Spending is planned and controlled

- Sufficient financing is available when is needed, both now and in the future

- Excess cash is invested in certificates of deposit (CDs), government securities, or conservative marketable securities

A financial plan is a plan for obtaining and using the money that is needed to implement an organization’s goals. Financial planning begins with the establishment of a set of valid objectives. An objective as you know is a specific statement detailing what the organization intends to accomplish within a certain period of time. Next, planners must assign costs to these objectives. That is, they must determine how much money is needed to accomplish each one and what revenues they will get. A budget is a statement that projects income and/or expenditures over a specified period of time. Usually, the budgeting process begins with the construction of individual budgets for sales and for each of the various types of expenses: production, human resources, administration and so on. Finally, financial planners must identify available sources of financing and decide which to use. The four primary sources of funds are: sales revenue, equity capital, debt capital, and proceeds from the sale of assets. Sales generally provide the greatest part of a firm’s financing. Equity capital is money received from the sale of shares of ownership in the business. It is used almost exclusively for long-term financing. Debt capital is money obtained through loans of various types. Selling assets is a drastic step. However, it may be a reasonable last resort when neither equity capital nor debt capital can be found.

The Need for Financing

Money is needed both to start a business and to keep it going. The original investment of the owners, along with money they may have borrowed, should be enough to get operations under way. Then, it would seem that income from sales could be used to finance the firm's continuing operations and to provide a profit as well.

This is exactly what happens in a successful firm—over the long run. But sales revenue does not generally flow evenly. Both income and expenses may vary from season to season or from year to year. Temporary funding may be needed when expenses are high or income is low. Then, too, special situations, such as the opportunity to purchase a new facility or expand an existing facility, may require more money than is available within a firm. In either case, the firm looks to outside sources of financing.

Short-Term Financing Needs Short-term financingis money that will be used for a period of one year or less and then repaid. A firm might need short-term financing to pay for a new promotional campaign that is expected to increase sales revenue. Or the purchase of a computer-based inventory-control system, which will "pay for itself" within a year, might be funded with short-term money.

Although there are many short-term financing needs, two deserve special attention. First, certain necessary business practices may affect a firm's cash flow and create a need for short-term financing. Cash flow is the movement of money into and out of an organization. The ideal is having sufficient money coming into the firm, in any period, to cover the firm's expenses during that period. But the ideal is not always achieved. For example; a firm that offers credit to its customers may find an imbalance in its cash flow. Such credit purchases are generally not paid until thirty or sixty days (or more) after the transaction. Short-term financing is then needed to pay the firm's bills until customers have paid theirs. An unexpectedly slow selling season or unanticipated expenses may also cause a cash-flow problem.

A second major need for short-term financing that is related to a firm's cash-flow problem is inventory. Inventory requires considerable investment for most manufacturers, wholesalers, and retailers. Moreover, most goods are manufactured four to nine months before they are actually sold to the ultimate customer. As a result, manufacturers that engage in this type of speculative production often need short-term financing. The borrowed money is used to buy materials and supplies, to pay wages and rent, and to cover inventory costs until the goods are sold. Then, the money is repaid out of sales revenue. Wholesalers and retailers may need short-term financing to build up their inventories before peak selling periods. Again the money is repaid when the merchandise is sold.

Long-Term Financing NeedsLong-term financing is money that will be used for longer than one year. Long-term financing is obviously needed to start a new business. It is also needed for executing business expansions and mergers, for developing and marketing new products, and for replacing equipment that becomes outmoded or inefficient.

I. COMPREHENSION

A) Enlarge on:

1. What job opportunities does financial management open for the students who want to advance in this field?

2. What questions do financial managers face daily?

3. What is the role of financial management? Define: financial plan, objective, budget, equity capital.

4. Define the word “financial management” and describe the liabilities of the financial manager within a business organization.

5. Outline the uses of money in an entity.

6. When does a firm look to outside sources of financing?

7. Define the word “short-term financing”.

8. Name five short-term financing needs and explain their reason.

9. Define the word “long-term financing needs” and explain what they are.

B) Read about the evolution of financial management and be ready to speak on it:

Prior to 1930s the field of financial management was confined to descriptive discussions of various financial markets and the securities traded in those markets. Thus, finance as a field of study traditionally focused on the liabilities and stockholders’ equity side of the balance sheet and on fund raising.

The field underwent a number of significant changes during the Great depression, when it became more involved with legal matters of bankruptcy, reorganization, and government regulation.

Through the 1940s and into the 1950s the teaching of financial management continued to be basically qualitative and descriptive. During the 1950s financial management was expanded to include the asset side of the balance sheet, or the uses of a firm’s funds, in addition, the application of discounted cash flow techniques to the problems of capital expenditure analysis was being refined and perfected. Also, financial researchers were making significant breakthroughs in developing techniques for measuring the cost of capital and valuing financial assets. Progress in both the capital budgeting and the cost of capital areas has continued to the present days.

During the 1960s mathematical models using statistical and optimization techniques were applied to the allocation of current assets such as cash, accounts receivable and inventories, and fixed assets. During the decade of the 1980s there will be an increasing emphasis on applying computer technology to assist in financial decision-making. Financial management consists of all those activities that are concerned with obtaining money and using it effectively. Within a business organization, the financial manager must not only determine the best way (or ways) to raise money. She or he must also ensure that projected uses are in keeping with the organization’s goals. Effective financial management thus involves careful planning. It begins with determination of the firm’s financing needs.

C) Specify the needs for financing. The first one has been done for you:

Short-Term Financing	Long-Term Financing
To get operations under way	To start a new business

II. FOCUS ON GRAMMAR

A) Insert prepositions:

1.Wholesalers and retailers may need short-term financing to build …. their inventories before peak selling periods. 2.Then, the money is repaid ….. of sales revenue. 3. As a result, manufacturers that engage ….. this type of speculative production often need short-term financing. 4. Or the purchase of a computer-based inventory-control system, which will "pay for itself" within a year, might be funded …… short-term money. 5. Financial managementconsists …. all those activities that are concerned ….. obtaining money and using it effectively. 6.Cash flow is the movement of money ….. and out of an organization.

B) Business Vocabulary

In English, nouns and verbs frequently share the same base (root). Many verbs may add the ending –ion (or often – tion, or – ation) to form a noun. Ex: create-creation

Notice that the final – e of the verb disappears in the noun form. In every case, the ending – ion means “process,” “act,” or “state of being.” Creation is the act of creating, or it is what has been created.

a) Make nouns from the following verbs. Use your dictionaries:

a. to protect =

b. to intend =

c. to promote =

d. to violate =

e. to deprive =

f. to commend =

g. to tempt =

h. to perceive =

b) Write the verb form of the word beside its meaning in the list below:

1. ____________ to gain understanding, to realize

2. ____________ to keep something from someone

3. ____________ to guard, to keep from danger

4. ____________ to raise to a more important job or rank

5. ____________ to have a purpose in mind

6. ____________ to praise, to approve of

7. ____________ to break a rule or law

8. ____________ to create a desire

c) Now write the noun form next to its meaning:

9. ____________ the act of approving, praising

10. ____________ the act of breaking a law or rule

11. ____________ the result or process of gaining understanding

12. ____________ the fact of having a purpose in mind

13. ____________ the act of keeping something from someone

14. ____________ an advancement in job or rank

15. ____________ the act of keeping from danger

16. ____________ the creation of a desire

d) From among the sixteen forms you have written, choose the one which is appropriate for each blank in the following memo.

MEMORANDUM

Date: November 23, 2006

To: Robert Ellison

From: Deborah Weaver

Subject: Age Bias

I have just read a recent magazine article in Business Week which discusses age bias in business. The article comments on the fact that many businesses ____________ the rights of many older managers in business by not giving them a ____________ as they approach sixty-five years of age and by cutting their pensions. Companies are frequently ____________ to fire older executives or to force them to retire early.

However, many of the affected businessmen are seeking the ____________ of the 1998 Age Discrimination in Employment Act (ADEA). Under this law, any business which has ____________ a person of his/her job and pension benefits may be in ____________ of the law and can be sued by the person affected. The Equal Employment Opportunity Commission ____________ to reinforce the law whenever possible.

Robert, please check the personnel files on all our departments’ older employees. Find out if any have been given a written ____________for good work within the last three years or if any have been given ____________ to a higher position within the last two years. It is not the ____________ of this department to ____________ older managers of any legal rights.

Please report your findings within the week. Thanks.

III. VOCABULARY PRACTICE

A) Match the words with their definitions:

Long-term financing, budget, debt capital, short-term financing, equity capital, cash flow, financial management

1. All those activities that are concerned with obtaining money and using it effectively.

2. The movement of money into and out of an organization.

3. Money that will be used for longer than one year.

4. Money that will be used for a period of one year or less and then repaid.

5. A statement that projects income and/or expenditures over a specified period of time.

6. Money received from the sale of shares of ownership in the business.

7. Money obtained through loans of various types.

B) Insert nouns, verbs, adjectives:

NOUN	VERB	ADJECTIVE
expansion
		speculative
	to finance
practice
		continuing
	to spend
		promotional
rise
	to fund
merger

C) Find English Equivalents in the text:

finanţare pe termen scurt/ краткосрочное финансирование _____________________

finanţare pe termen lung/ долгосрочное финансирование ______________________

în cadrul unei organizaţii/ в рамках организации______________________

sursă de finanţare din exterior/ внешний источник финансирования__________

a folosi banii efectiv/ рационально использовать деньги ________________

a continua o afacere/ продолжить дело_______________________________

cheltuieli neanticipate/ непредвиденные затраты _________________

banii sunt achitaţi din/ деньги выплачиваются из _____________________

client final/ конечный покупатель _____________________________

D) Find the synonyms (a-e) and antonyms (f-j) in the text:

a. final customer = f. to be in vogue =

b. tempting profession = g. efficient =

c. last step = h. balance =

d. risky step = i. expectedly =

e. unsuccess of a business = j. profit seeking =

IV. DISCUSSION

Your company is undergoing hard times. This year expenses have been higher and income - very low. If you do not take corrective actions it is expected to fail. As a chief executive officer organize a meeting with the marketing manager, financial manager, operations manager and discuss the advantages and disadvantages of obtaining financing. Use the following expressions:

- I think we should .......

- One way to ..........

- My viewpoint is ..........

- We are absolutely convinced that ..........

- The advantage of ........... is .............