08-tacn bai4(tr47-64) 08.01.10 layout 1

FINANCIAL ANALYSIS

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Unit 4: Financial analysis

UNIT OBJECTIVES - MỤC TIÊU

DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)

• Provide students with the language and knowledge related to the work of financial analysis.

Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến công việc phân tích tài chính.

• Provide students with the language and method to write a classification essay.

Cung cấp cho học viên ngôn ngữ và phương pháp để viết một bài luận phân loại.

• At the end of this unit, students will be able to tell and write about main types of financial analysis, the main characters of each type and some ratios in analyzing financial statements.

Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các cách phân tích tài chính cơbản, những đặc điểm chính của từng loại và một số chỉ số trong phân tích báo cáo tài chính.

In this unit, we will learn language and knowledge related to main types

of financial analysis, the main characters of each type and some ratios

in analyzing financial statements.

Trong bài học này, chúng ta sẽ học về ngôn ngữ và kiến thức liên quantới các phương thức phân tích tài chính, đặc điểm của từng loại và cácchỉ số trong phân tích các báo cáo tài chính.

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Match the terms or concepts in column A with their definitions in column B. The suggested time to do this exercise is 10 minutes.

Column A Column B

1 Business cycle A A detailed examination or report on financial performance

2 Financial instrument B The difference between the price of goods paid by ashopkeeper and the price paid by the customer

3 Financial statementanalysis

C An amount of money received from sales of goodsminus the cost of manufacturing or buying them

4 Gross margin D The examination of two or more organizations that produce similar goods or carry out the same stage ofthe production process

5 Gross profit E Any stock, share, money, or other financial security

6 Horizontal analysis F Recurring fluctuations in economic activity consistingof recession and recovery and growth and decline

7 LiquidityLiquidity ratio

G Having enough money to pay your debts; having an excess of assets over liabilities

8 Net sales revenue H The examination based on the relationship between two amounts determined by the number of times onecontains the other

9 Ratio analysis I The examination of a movement in a certain direction

10 SolvencySolvency ratio

J Finance of assets that are easily turned into cash the relationship between the amount of money held in cash and the total amount held in deposits and investments

11 Trend analysis K The amount of money made from the sale of goodsminus the cost of producing, selling and distributingthem

12 Vertical analysis L The examination of two or more organizations that dealwith different stages in a production process

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Text A: Read the text do exercise 2.1 and 2.2 below. The suggested time forreading the text and completing the exercise is 30 minutes.

FINANCIAL ANALYSIS

Financial analysis

F inancial statement analysisis the process of examining

relationships among financialstatement elements and makingcomparisons with relevant information. It is a valuable toolused by investors and creditors,financial analysts, and others intheir decision-making rocessesrelated to stocks, bonds, andother financial instruments.The goal in analyzing financialstatements is to assess past performance and current financial position and to makepredictions about the futureperformance of a company. Investors who buy stock are primarily interested in acompany's profitability andtheir prospects for earning a return on their investment byreceiving dividends and/or increasing the market value oftheir stock holdings. Creditorsand investors who buy debt securities, such as bonds, aremore interested in liquidity and solvency: the company'sshort-and long-run ability topay its debts. Financial analysts,who frequently specialize infollowing certain industries,routinely assess the profitability,liquidity, and solvency of companies in order to makerecommendations about the

purchase or sale of securities,such as stocks and bonds.

Analysts can obtain useful information by comparing acompany's most recent financialstatements with its results inprevious years and with the results of other companies inthe same industry. Three primarytypes of financial statementanalysis are commonly knownas horizontal analysis, verticalanalysis, and ratio analysis.

Horizontal Analysis

W hen an analyst comparesfinancial information for

two or more years for a singlecompany, the process is referredto as horizontal analysis, sincethe analyst is reading across thepage to compare any single lineitem, such as sales revenues. In addition to comparing dollaramounts, the analyst computespercentage changes from yearto year for all financial statementbalances, such as cash and inventory. Alternatively, incomparing financial statementsfor a number of years, the

analyst may prefer to use avariation of horizontal analysiscalled trend analysis. Trendanalysis involves calculatingeach year's financial statementbalances as percentages of thefirst year, also known as thebase year. When expressed as percentages, the base yearfigures are always 100 percent,and percentage changes fromthe base year can be determined.

Vertical Analysis

W hen using vertical analysis,the analyst calculates

each item on a single financialstatement as a percentage of atotal. The term vertical analysisapplies because each year's figures are listed vertically on afinancial statement. The totalused by the analyst on the income statement is net salesrevenue, while on the balancesheet it is total assets. This approach to financial statementanalysis, also known as com-ponent percentages, producescommon-size financial statements.Common-size balance sheets andincome statements can be moreeasily compared, whetheracross the years for a singlecompany or across differentcompanies.

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Ratio Analysis

Ratio analysis enables theanalyst to compare items

on a single financial statementor to examine the relationshipsbetween items on two financialstatements. After calculatingratios for each year's financialdata, the analyst can then examinetrends for the company acrossyears. Since ratios adjust forsize, using this analytical toolfacilitates intercompany as wellas intracompany comparisons.Ratios are often classifiedusing the following terms:profitability ratios (also knownas operating ratios), liquidityratios, and solvency ratios.Profitability ratios are gaugeof the company's operating success for a given period of time. Liquidity ratios aremeasures of the short-term ability of the company to pay itsdebts when they come due andto meet unexpected needs forcash. Solvency ratios indicatethe ability of the company tomeet its long-term obligationson a continuing basis and thusto survive over a long period of

time. In judging how well on a company is doing, analyststypically compare a company'sratios to industry statistics as wellas to its own past performance.Financial statement analysis,when used carefully, can pro-duce meaningful insights abouta company's financial informa-tion and its prospects for the

future. However, the analystmust be aware of certain important considerations aboutfinancial statements and the useof these analytical tools. Forexample, the dollar amounts formany types of assets and other financial statement items are usually based on historical costsand thus do not reflect replacementcosts or inflationary adjustments.Furthermore, financial statementscontain estimates of numerousitems, such as warranty expensesand uncollectible customer

balances. The meaning fulnessof ratios and percentages depends on how well the financial statement amountsdepict the company's situation.Comparisons to industry statistics or competitors' resultscan be complicated becausecompanies may select different,although equally acceptable,methods of accounting for inventories and other items.Making meaningful comparisonsis also hampered when a companyor its competitors have widelydiversified operations.

T he tools of financial statement analysis, ratio

and percentage calculations,are relatively easy to apply. Understanding the content ofthe financial statements, on theother hand, is not a simple task. Evaluating a company'sfinancial status, performance,and prospects using analyticaltools requires skillful applicationof the analyst's judgment.

2.1

Questions T/F

1. The purpose of analyzing the financial statements is only to make predictionabout the future performance of a company.

2. Financial analysts often specialize in assessing the performance of many dif-ferent industries at the same time.

3. Trend analysis assesses the performance of a company in a year based on thecomparison between the figures of that year to that of the base year.

4. It is more difficult to compare common-size balance sheets and income sheetseither across the years or across different companies.

5. Liquidity ratios are measures of the company’s ability to pay its debts in a short term.

According to the text, which of the following sentences are true (T) or false (F)

Source: Text A: From Financial Statement Analysis, MARY BRADY GREENAWALT, http://www.answers.com/

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Answer the following questions with your own words, based on the informationin the text

1. What is the importance of financial statement analysis?

……………...................................................................................................…..

2. What is the purpose of analyzing financial statements?

……………...................................................................................................…..

3. What do the financial analysts do?

……………...................................................................................................…..

4. How can financial analysts get useful information to make financial statements?

……………...................................................................................................…..

5. Why is it called Horizontal Analysis?

……………...................................................................................................…..

6. What is the character of ratio analysis?

……………...................................................................................................…..

7. In ratio analysis, how can analysts judge on the performance of a company?

……………...................................................................................................…..

Text B: Read the text and do exercise 2.3 and, 2.4. The suggested time for reading the text and completing the exercises is 30 minutes

FINANCIAL RATIO ANALYSIS

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends

of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a company's financial statements.

For example, the "gross margin" is the gross profit fromoperations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context,however, a financial ratio can give a financial analyst anexcellent picture of a company's situation and the trendsthat are developing.

A ratio gains utility by comparison to other data and standards. Taking our example, a grossprofit margin for a company of 25% is meaningless by itself. If we know that this

company's competitors have profit margins of 10%, we know that it is more profitable thanits industry peers which are quite favourable. If we also know that the historical trend is upwards,for example has been increasing steadily for the last few years, this would also be a favourablesign that management is implementing effective business policies and strategies.

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Financial ratio analysis groups the ratios into categories that tell us about different facets ofa company's finances and operations. An overview of some of the categories of ratios is

given below.

• Leverage Ratios which show the extent that debt is used in a company's capital structure.

• Liquidity Ratios which give a picture of a company's short term financial situation or solvency.

• Operational Ratios which use turnover measures to show how efficient a company is inits operations and use of assets.

• Profitability Ratios which use margin analysis and show the return on sales and capital employed.

• Solvency Ratios which give a picture of a company's ability to generate cash flow and payit financial obligations.

It is imperative to note the importance of the proper context for ratio analysis. Like computer programming,

financial ratio is governed by the GIGO law of "GarbageIn...Garbage Out!" A cross industry comparison of theleverage of stable utility companies and cyclical miningcompanies would be worse than useless. Examining acyclical company's profitability ratios over less than a fullcommodity or business cycle would fail to give an accurate

long-term measure of profitability. Using historical data independent of fundamental changesin a company's situation or prospects would predict very little about future trends. For example, the historical ratios of a company that has undergone a merger or had a substantivechange in its technology or market position would tell very little about the prospects for thiscompany.

Credit analysts, those interpreting the financial ratios from the prospects of a lender, focus on the "downside" risk since they gain none of the upside from an improvement in

operations. They pay great attention to liquidity and leverage ratios to ascertain a company'sfinancial risk. Equity analysts look more to the operational and profitability ratios, to determine the future profits that will accrue to the shareholder.

Although financial ratio analysis is well-developed and the actual ratios are well-known,practicing financial analysts often develop their own measures for particular industries

and even individual companies. Analysts will often differ drastically in their conclusionsfrom the same ratio analysis.

Source: From Financial Ratio Analysis, http://www.finpipe.com/equity/finratan.htm

Answer the following questions by choosing the best choice

1. What does the phrase “in isolation” mean?

a. in particular b. individually c.in general

2. What does the phrase “in context” mean?

a. in combination b. in general c. in all

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3. What can be inferred from the example of the gross profit margin?

a. the ratios are especially useful by comparison to others

b. the ratios themselves can show a company’s financial performance

c. there’s no need to look at the historical trend when analyzing the ratios

4. What does the word “itself” in the sentence: “Taking our example, a gross profit marginfor a company of 25% is meaningless by itself” refer to?

a. a company b. a gross profit margin c. 25%

5. What’s the INCORRECT statement?

a. Historical data and fundamental changes should be used independently.

b. Credit analysts pay attention to liquidity and leverage ratios most of all.

c. Equity analysts are interested in the operational and profitability ratios.

Fill in the blanks with the words given below

Ratio Analysis (1) _________ the business owner/manager to spot trends in a business andto (2) _______ its performance and condition with the (3) _________ performance of similarbusinesses in the same (4) _________. To do this, compare your ratios with the average ofbusinesses (5) _________ to yours and compare your own ratios for several (6) _________years, watching especially for any unfavorable (7) _________ that may be starting. Ratioanalysis may provide the all-important early warning (8) _________ that allow you to solveyour business (9) _________ before your business is destroyed by (10) _________.

Listening 1

Listen to a lecture about the financial ratio analysis and answer the following questions

1. What does ratio analysis provide?

……....................................................................……….

2. How is horizontal analysis used?

……....................................................................……….

3. What about vertical analysis?

……....................................................................……….

4. What does “it” in this sentence: “It indicates the existing relationship between sales andeach income statement account” refer to?

a. the horizontal analysis b. the vertical analysis c. the structure of the firm.

5. What are the two types of comparison in financial ratio analysis?

……....................................................................……….

6. What will the firm’s financial analyst do after completing the financial statement analysis?

……....................................................................……….

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2.4

3.1

average compare enables indications industry

problems similar successive them trends

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Listening 2

Listen to the lecture again and fill in the blanks

Industry comparison. The ratios of a firm are compared with those of (1) _______ firms orwith industry (2) ________ or norms to (3) _________ how the company is faring relativeto its (4) _________. Industry average ratios are (5) _________ from a number of (6)_______, including: (a) Dun & Bradstreet. Dun & Bradstreet computes 14 ratios for each of125 (7) _________________. They are published in Dun's Review and Key Business Ratios. (b) Robert Morris Associates. This association of bank loan officers________(8)_________ Annual Statement Studies. Sixteen ratios (9) __________ for more than 300 linesof business, as well as a (10) ___________distribution of items on the (11) ____________and (12) _____________________ (common size financial statements).

Trend analysis. A firm's present ratio is compared with its (13) ______ and expected (14)_____ ratios to determine whether the company's (15) ____________________ is improvingor deteriorating over time.

After completing the financial statement analysis, the firm's financial analyst will consult withmanagement to discuss plans and prospects, any problem areas identified in the analysis, and possible solutions.

Match the terms or expressions in column A with their definitions in column B.The suggested time to do this exercise is 5 minutes

4.1

2.3

Column A Column B

1. The current ratio (or working capital) measuresliquidity – i.e. having enough cash to meetshort-term obligations. It shows if a businesscan pay its most urgent debts.

A Sales volume__________________________

Number (or wages) of employees

2. A company’s profit margin or return on salesis the percentage difference between salesincome and the cost of sales.

B (long-term) loan capital__________________________

Shareholders’ equity or net assets

3. Productivity shows the amount of work orsales per employee.

C Current assets_____________

Current liabilities

4. Earnings per share relates the company’sprofits to the number of ordinary shares ithas issued.

D Distributable profit_______________

Number of shares

5. A company’s debt/ equity ratio compares theamount of debt to the firm’s own capital.

E Pre-tax profit_____________

Owners’ equity

6. Return on equity shows profit compared toshareholders’ capital.

F Pre-tax profit___________

Sales

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Choose the best alternative to complete each sentence. The suggested time to dothis exercise is 10 minutes

1. A company needs to raise a lot of money, it may ……….. shares.

a. put up b. issue c. supply d. purchase

2. Pension ……….. play an important role in the stock market.

a. companies b. trusts c. societies d. persuaded

3. As an ordinary shareholder, you are ……….. to vote at the meeting.

a. entitled b. titled c. nominated d. persuaded

4. The share ……….., which is made up of a cross-section of shares, reflects the general activity of the market.

a. indication b. index c. measure d. indicator

5. A ……....….. is someone who buys shares, expecting the market to rise.

a. bear b. bull c. dog d. stag

6. A ……....….. is a speculator who expects share prices to fall.


7. A ……..….. is a person who buys new issues of shares hoping to sell them quickly at a profit.


8. I’ve put part of the money into an instant ……….. account.

a. access b. excess c. exit d. entrance

9. Bonds issued by the government are often known as ………..

a. gelts b. guilt’s c. gilts d. debits

10. What kind of ……….. can I expect on my investment?

a. reward b. prize c. surplus d. return

11. You should have as diversified a ……….. of shares as possible.

a. case b. file c. portfolio d. folder

12. In real ……….. the $1,000 you invested would be worth $5,000 today.

a. words b. facts c. factors d. terms

13. The higher the risk you ……….. , the more money you could make.

a. take b. do c. make d. invest

14. The market has been extremely ……….. over the past few years.

a. volatile b. wavering c. shocking d. moving

4.2

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Based on the information in the two texts above, answer the following questionsin your own words

1. What’s financial statement analysis?

……...................................................……………..

2. What’s the purpose of analyzing financial statements?

……...................................................……………..

3. How many types of financial statement analysis? What are they?

……...................................................……………..

4. Describe each type of financial statement analysis?

……...................................................……………..

5. What is financial ratio analysis?

……...................................................……………..

6. Give some examples of financial ratios and explain them.

……...................................................……………..

Discussion – Work in pairs or groups and discuss the following questions

1. Which particular skills and abilities among those below do you think a financial executiveneeds?

Can you name any other skills or characteristics important for a financial executive?

2. Do you think you possess the necessary skills?

3. If you have yet to choose a career, do you think it could be a financial executive? Why orWhy not?

5.1

5.2

Essential skills Technical skills

team work skill

language skills

problem solving skill

communication skills

……………………….

knowledge about finance

data analyzing skill

maths

…………………………….

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Writing a classification essay1. What is a classification essay?

In a classification essay, a writer organizes, or sorts, things into categories. 2. Three steps to effective classification:

Step 1: Sort things into useful categories. Step 2: Make sure all the categories follow a single organizing principle. Step 3: Give examples that fit into each category.

3. Finding categoriesThis is a key step in writing a classification essay. To classify, or sort, things in a logicalway, find the categories to put them into. For example, say you need to sort the stack ofpapers on your desk. Before you would put them in random piles, you would decide whatuseful categories might be: papers that can be thrown away; papers that need immediateaction; papers to read; papers to pass on to other coworkers; or papers to file.

4. Thesis statement of a classification essayThe thesis statement usually includes the topic and how it is classified. Sometimes thecategories are named. (topic)...(how classified)...(category) (category) (category)Ex: Tourists in Hawaii can enjoy three water sports: snorkeling, surfing, and sailing.

5. How to write an effective classification essayA. Determine the categories. Be thorough; don't leave out a critical category. For example,

if you say water sports of Hawaii include snorkeling and sailing, but leave out surfing,your essay would be incomplete because surfing is Hawaii's most famous water sports.On the other hand, don't include too many categories, which will blur your classification. For example, if your topic is sports shoes, and your organizing principleis activity, you wouldn't include high heels with running and bowling shoes.

B. Classify by a single principle. Once you have categories, make sure that they fit into the sameorganizing principle. The organizing principle is how you sort the groups. Do not allow a different principle to pop up unexpectedly. For example, if your unifying principle is "tourist-oriented" water sports, don't use another unifying principle, such as "native water sports,"which would have different categories: pearl diving, outrigger, or canoe racing.

C. Support equally each category with examples. In general, you should write the samequantity, i.e., give the same number of examples, for each category. The mostimportant category, usually reserved for last, might require more elaboration.

6. Common classification transitions• The first kind, the second kind, the third kind • The first type, the second type, the third type • The first group, the second group, the third group

Writing practice

How many types of financial analysis do you know? What are their characteristics?Use the knowledge you have learned from this lesson and additional resourcesto write an essay to answer this question. The suggested time for completing theexercise is 45 minutes

6.1


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English terms Vietnamese equivalents

B- Base year- Business cycleC- Credit analystD- Debt securityF- Financial instrument- Financial statement analysisG- Gross margin- Gross profitH- Horizontal analysisL- Liquidity- Liquidity ratioN- Net sales revenueO- Operational ratioP- Profitability ratioR- Ratio analysisS- Solvency- Solvency ratioT- Trend analysisV- Vertical analysis

- Năm căn bản/ chuẩn/ gốc- Chu kỳ kinh doanh

- Người/Chuyên viên phân tích tín dụng

- Chứng khoán nợ

- Công cụ tài chính (như chứng khoán, cổ phần, tiền…)- Phân tích báo cáo tài chính

- Mức lãi gộp/ biên lãi gộp (bán hàng)- Lợi nhuận gộp/ lãi mộc

- Phân tích theo chiều ngang

- Mức quay vòng vốn, khả năng thanh toán, tính lỏng- Tỷ suất thanh toán, tỷ suất lưu động

- Doanh thu ròng

- Tỷ suất kinh doanh

- Tỷ suất (khả năng) sinh lợi

- Phân tích hệ số/ tỷ lệ

- Khả năng trả nợ- Tỷ suất khả năng thanh toán

- Phân tích xu hướng

- Phân tích theo chiều dọc

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REVISION A

CONTENTS

Finance and Companies

Read the summary below and decide whether each of the following is assets orliabilities and of what kind? Which three are not assets?

A. Assets

An asset is something that has value, or the power to earn money. These include:

• current assets : money in the bank, investments that can

easily be turned into money, money that customers owe,

stocks of goods that are going to be sold.

• fixed assets: equipment, machinery, buildings and land.

• intangible assets: things which you cannot see. For example,

goodwill: a company’s good reputation with existing

customers, and brands (see unit 22): established brands have

the power to earn money.

If a company is sold as a going concern, it has value as a

profit-making operation, or one that could make a profit.

B. Liabilities

Liabilities are company’s debts to supplier, lenders, the tax

authorities, etc. Debts that have to be paid within a year are

current liabilities, and those payable in more than a year are

long-term liabilities, for example bank loans.

1. Vans which a delivery company owns and uses to deliver

goods.

2. Vans for sale in a showroom.

3. A showroom owned by a company that sells vans.

4. A showroom rented by a company that sells cars.

5. A sum of money that a company has to pay its supplier in the next six months.

Revision A

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UNIT OBJECTIVES - MỤC TIÊU

• Review the topics introduced in Unit 1, Unit 2, Unit 3 and Unit 4 through reading and vocabulary exercises.

Ôn tập các chủ đề đã học ở bài 1, bài 2, bài 3 và bài 4 thông qua các bài đọc và từ vựng.

1

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6. Money which customers owe, that will definitely be paid in the next 60 days.

7. Money which a bankrupt customer owes, that will certainly never be paid.

8. The client list of a successful training company, all of which are successful businesses.

9. A five year loan from a commercial bank.

10. The client list of a training company, with names of clients that have all gone bankrupt.

Match the words or expressions in the column A with their definition in column B

Revision A

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1.2

Column A Column B

1 Articles of Co-partnership (n) A The contract telling the terms, conditions andpurposes of a corporation.

2 Articles of Incorporation (n) B Separate unit for ownership or legal purpose

3 Bankrupt (adj) C Unable to pay one’s debts and legally releasesfrom the liability.

4 Board of Directors D A group of persons elected by stockholders torun a corporation.

5 Dividend (n) E The contract telling the terms and conditionsof a partnership

6 Entity (n) F Business owned by two or more individuals

7 Expertise (n) G A share of the profits of a corporation which isgiven to the stockholders.

8 Income tax (n) H Special knowledge or ability

9 Partnership (n) I One-owner business

10 Sole Proprietorship (n) J A tax which is based on the amount of money aperson or company receives for labor , services,or products, and which cannot be added to theprice of the labor , services or products.

11 Turnover (n) K Sales revenue minus the cost of sales, beforedeductions for administration expenses, interestcharges, etc.

12 Net profit L Sales revenue minus the cost of making and selling the goods and deductions for administration expenses, interest charges, etc

13 Gross profit M The total amount of money a company receives from selling goods or services.

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Decide which of the alternatives (A-H) each speaker is talking about. Write theletter of your answer in the box at the end of the sentence. There are some alternatives that you don’t have to use.

A. indebtedness B equity C share capital D bond

E. leverage F gross profit G venture capitalist H collateral

Accountancy

Choose a suitble word or phrase in the list to fill in each blank below

Hi, I’m Fiona and I’m an (1)………….. I work in Edinburgh for one big accountancy firms.

We look at the financial records or (2)…………. of a lot of companies. We work with the

accountants of those companies, and the people who work under them:( 3) …………... I like

my profession (4) …………...

Sometimes we act as (5)………… : specialist outside accountants who audit a company’s

accounts, that is, we check them at the end of the particular period to see if they give a true

and (6)…………. (an accurate and complete picture). An audit can take several days, even

for a fairly small company.

When a company’s results are presented in a way that makes them look better than they

really are, even if it follows the rules, it may be accused of creative accounting or

(7)………….. Of course, I never do this!

Revision A

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1.3

2

1. “We had to find a lender who was prepared to finance an exciting new company.”

2. “Our lending to companies takes the from of conditional loansor debentures.”

3. “If you do not keep up with the repayments, we may sell yourhome to recover our money”.

4. “The company is highly geared so I wouldn’t invest in it.”

5. “We owe our supplier $12,000 and we have a loan of $8,000 sothe total is about $20,000.”

auditors fair view

accounts accountancy

accountant window dressingthe

bookkeepers

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Financial statement and analysis

Match the explanation in column A with its words in column B

Choose the most suitable answers for the following questions

1. The money raised from several international banks will help __________ the airline's moveto a new airport.

a. finance b. price c. subsidise d. compensate

2. The car company is going to ________ $220m in its production plan next year in order todouble output.

a. invest b. fund c. deposit d. advance

Revision A

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3

3.2

3.1

Column A Column B

1 A formal description of income and costs for a timeperiod that has finished

A Balance sheet

2 A formal description of a company’s financial positionat a specified moment

B Capital expenditure

3 Items of value which are not easily changed intocash but which the business needs

C Cash budget

4 Money made by the company, less all costs, but before tax has been paid

D Current assets

5 The person who is responsible for the financial side ofrunning a business

E Dividends

6 Individuals who invest their money in a companyhope to regularly receive these

F Finance director

7 A plan of cash income and cash spending for a specificperiod of time

G Financial advisor

8 Cash items, or items that can easily be changed intocash for the present financial year

H Fixed assets

9 Major spending on large items necessary for the business, such as property or equipment

I Pre-tax profit

10 Someone who advised people on how to manage theirfinancial affairs

J Profit and loss report

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3. The company was unable to pay its debts and was therefore declared ________.

a. bankrupt b. written off c. uneconomic d. indebted

4. The bank has agreed a/an ____ of $1m to finance the purchase of the new building.

a. allowance b. loan c. accommodation d. advance

5. Last year they made a big profit from ________ of their new product range.

a. lending b. purchases c. sales d. taxes

6. At the end of a difficult year, the company are predicting pre-tax __________ of $5.7mcompared with $9.8m last year.

a. benefits b. profits c. gains d. winnings

7. Goodfood Ltd. recorded sales last year of about $1.7b and shareholders are expecting toreceive a high ____________ on their shares.

a. dividend b. payout c. margin d. interest

8. The shares that we bought in one of the new dotcom companies are expected to__________ over the next two years.

a. increase in value b. increase in number

c. decrease in value d. decrease in number

9. The directors' key role is to reduce costs, increase sales and thereby ______ profits.

a. maximize b. lead to c. overcome d. win

10. A good financial management system enables you to ________ important big picture anddaily financial objectives.

a. foresee b. withdraw c. accomplish d. practise

Financial Results

Choose a suitable word or phrase in the list to fill in each blank below.

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

In theory, if a company makes more money than itspends, it makes a profit. If not, it makes a(3)……………. But it’s possible for a company toshow a profit for a particular period because of the way it presents its activities under the(4)……………or accounting rules of one country, and a loss under the rules of another. Myfirm operates in many countries and we are very aware of this!

Revision A

63

a profit and loss account bottom line

in the red accounting standard

gross profit exceptional profit

red ink pre-tax loss

annual report loss

4

v1.0

A pre-tax profit or a (5) …………… is one before tax is calculated. An (6) ………….or lossis for something that is not normally repeated, for example the sale of a subsidiary companyor the costs of restructuring. A company’s (7) ……………is before charges like these aretaken away; it net profit is afterwards. The final figure for profit or loss is what people callinformally the (8)…………….. . This is what they really worry about!

If the company is making a loss, commentators may say that it is (9)………… They may alsouse expressions with (10)…………. , saying, for example that a company is bleeding red inkor hemorrhaging red ink”.

Revision A

64 v1.0

08-tacn bai4(tr47-64) 08.01.10 layout 1

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