Unit 13

FINANCIAL MANAGEMENT

MANAGEMENT FUNCTIONS

Vocabulary

Переведите и выучите слова.

Запомните произношение интернациональных слов, переведите их без словаря.

Finance — financing — financial; concentrate — concentration; associate — association; contribute — contribution; maximize — maximization; partner­ship — partner; basis — basic — basically; nature — natural — naturally; investment — investor — in­vest — reinvest; liquid — liquidity; adequate — inadequate; budget — budgeting; characterize — characterization; compromise; alternative.

Text 1

In recent years financial managers have achieved increasing recognition in business firms. Businesses tend to grow, and the growing concentration of assets in the hands of larger corporations means that the financial managers have larger responsibilities. Business expenditures for new plants and equipment usually involve evaluation by financial managers. Mergers, acquisitions, tax problems also accompany the growth in the size of business firms and call upon the skill of financial managers.

What should be the goal of a business firm? Since the owners of a firm are the individuals who have provided the basic capital for its creation, and who bear the risks associated with its performance, the firm logically should be run for their benefit. The firm contributes to the owners' wealth simply by maximizing the market value of the owner's equity, that is, their claim on the assets of the firm (common stock of a corporation, a share in a partnership, ownership interest in a sole proprietorship).

In seeking to attain the goal of maximizing the market value of the owner's equity, the financial manager must compromise between two basic factors. The trade-off may be expressed as return versus risk.

Consider that we are the owners of a firm. What determines its value to us and to the market? Obviously, the amount of money that it returns is important. The greater the flow of cash produced, the higher our return, that is, the more we have to spend on consumption or to reinvest in the business. Naturally, cash outflows or expenses are also incurred during the course of operation. It is common practice to measure returns as the difference between cash inflows and cash outflows during a given time period. Furthermore, we can express such net cash flow returns by relating return to the investment and obtain rate of return (in percent).

Risk is involved in any business transaction. Keeping money in a checking account bears no risk and is entirely liquid, but this does not bring us any return. As soon as we transfer some of the cash into other assets — say a machine — we have a chance to generate some cash flows, but we assume some risks and sacrifice some liquidity. This is the basic dilemma of the financial manager.

In order to maximize the market price of the owners' equity by properly balancing risk and return, the financial manager is involved in three main functions: financial planning, managing assets, and raising funds.

The planning function is one of the most challenging and interesting of all the functions of the financial manager. Participating in the long-term planning for the business, the financial manager must have a broad, overall view of the operations of the company. First of all, he or she is concerned with major plant expansion, replacement of machinery, and other expenditures which will cause unusually large cash outflows. On the basis of the knowledge of these plans and estimates of sales for the near future, the financial manager must also estimate short-term cash flows.

As the financial manager plans the flows of cash, he or she must also ensure that funds are invested wisely or " economically" within the business, or else returned to the owners. Every dollar invested in the firm's assets has alternative uses. It could be invested in a government bond. It could be committed to a research and development program for new products. Or the dollar might be returned to the owners if they could earn a better return at the same risk, or the same return at less risk. This is the trade-off of risk and profitability that the financial man­ager must accomplish in planning the firm's future.

If the financial manager's planned cash outflow exceeds cash inflow, it will be necessary to obtain funds from outside the business. A firm can seek money in various money or capital markets. Within these markets, funds are available from many sources, under different types of agreement, and for different periods of time. The financial manager's problem is to obtain the combination that most closely suits the needs of the business.

The financial manager must also deal with some special problems that may come to pass in the history of a business. In case of a proposal for merger, there are problems concerning the basis upon which the current owners shall exchange their securities for securities of the new firm. This requires a determination of the respective values of the securities involved. In some cases financial managers are deeply involved in the reorganization of the company's finances, to protect the business from failure. If the reorganization proves inadequate, the financial manager will be there at the death, supervising the final disposition of the firm's remains to the creditors and owners.

Закончите предложения, используя содержание текста.

1. The increasing role of financial managers isexplained by___.

2. The goal of a business firm is to maximize____.

3. The basic dilemma of a financial manager is to balance___.

4. The higher the ___ of the firm, the more money it has to spend on___.

5. The rate of return relates the return to___.

6. Cash is the most ___ asset but it does not generate any___.

7. The three main functions of a financial manager are___.

8. On the basis of long-term plans financial managers must estimate___.

9. Funds may be raised in___and___markets.

10. Asset management involves decisions on the best trade-off of___.

11. Financial managers may deal with such special problems as___.

Найдите в тексте объяснение следующих терминов:

owners of a firm rate of return

owners' equity money or capital markets

return merger

cash outflows

Прочтите тексты, сформулируйте вопросы к ним.

1. The preparation of a cash budget should allow the financial manager to answer a series of questions. (There is a need for additional financing) or (we have excess funds)? In the case of a need for funds, he or she should be able to answer: (how much we need)? (when we need the funds)? (when we can repay the funds that are needed)?

2. Determination of the " right" amount of inventory requires a balancing of the costs and risks of carrying¹⁾ inventory against the benefits from having the inventory available. (why / we / need / inventory)? (what functions / it /serve)? (what / are / the benefits of having inventory /, and / these benefits / increase in direct proportion to increases in the level of inventory)? Finally, (at what point / the benefits / begin to cost more than they are worth)? Some inventories are unavoidable. However, we can often minimize the available inventory by better production scheduling and by more efficient organization of the production line.

________________

¹⁾Carry – (зд.) торговать, расходовать.

Прочтите определение всех видов материально – производственных запасов. Заполните пропуски в предложениях.

Let us note that there are several different types of inventory: (*) goods in process; (*) raw materials; (*) supplies; and (*) finished goods. (*)___are usually defined as items that are used in the operation of the business but do not go into the final product.(*)___ are the material, sub-assemblies, or other items brought in from other plants or purchases from suppliers which become a part of the final product. Goods in transit from raw materials to finished goods are defined as (*) ___, while the completed product is termed (*)___.

Кратко, в 8-10 предложениях изложите на английском языке обязанности финансового директора.

Text 2