Kurs_anglyskogo_yazyka_dlya_finansistov
.pdfскорость оборота ...; существенно отличаться; доход от акций; доход от имущества; окупаемость инвестиций; быть подверженным риску.
Ex. 4. Say in a few words what the main text is about. Use the opening phrases from Ex. 4 (Unit 1). Ex. 5. Sum up the content of the dialogue. Use the phrases from Ex. 5 (Unit 1).
Ex. 6. Read the dialogue, translate the Russian remarks into English and act it out.
Foreigner. What funds are most typically generated at enterprises?
Russian: Для осуществления своей деятельности предприятию необходимы основные и оборотные фонды. Основные фонды – это здания, оборудование, машины. Они используются в хозяйственном процессе многократно. Оборотные фонды представляют собой запасы сырья, материалов, топлива, малоценных и быстроизнашивающихся предметов (objects of small value, quick-wearing objects).
F.: What resources can be used to acquire fixed and working capital?
R.: Предприятия могут использовать собственные и заемные средства.
F.: You mean own and borrowed capital, don't you?
R.: Да, собственный капитал формируется за счет выпуска акций, части прибыли от реализации продукции, амортизационных отчислений. А заемный капитал-это банковские ссуды, выпуск облигаций, прочие кредиты.
F.: As far as I know, enterprises create reserve funds, don't they?
R.: Да, образование резервного фонда является обязательным для акционерных обществ, кооперативов, предприятий с иностранными инвестициями. Он создается на случай прекращения деятельности предприятия и погашения его задолженности.
Ex. 7. Work on vocabulary and grammar.
a) Study the key words of the unit in the dictionary at the back of this book:
assets, exchange rate, interest rate, management, return, value, flow;
b) Think of the verbs that are commonly used with:
funds, financing, assets, inventory, cash, merger, dividends, liquid assets, business, solvency, profitability, risk, return;
c) Think of the nouns that are most often used with:
to acquire, to finance, to borrow, to distribute, to hold, to measure, to manage;
d) Think of word combinations with these words:
assets, capital, to manage, liabilities, ratio, shares, cost, return, cash, value;
e) Match the verbs from (a) with the nouns from (b) below:
a) to maximize |
b) services |
to perform |
company |
to delegate |
cash |
to acquire |
outlays |
to reduce |
value |
to generate |
cash flow |
to evaluate |
production facilities |
to expand |
calculation |
to calculate |
authority |
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to adjust |
shareholder wealth |
to manage |
inventories |
Ex. 8. a) Supply the articles where necessary.
b)Write down 3-5 questions about the texts.
c)Say in what activities financial managers are involved.
a)Financial Management explains how ... financial managers can help maximize the value of their firms by making better decisions in such areas as capital budgeting, choice of capital structure, and working capital management.
Financial managers also have ... responsibility for deciding the credit terms under which customers may buy, how much inventory ... firm should carry, how much cash to have on hand, what types of securities to issue, whether to acquire ... other firms (merger analysis) and how much of the firm earnings to plough back in the business versus payout as dividends.
A successful firm usually has ... rapid growth in sales, which requires investments in ... plant, equipment and inventory. The financial manager must help decide on ... specific assets to acquire and the best way to finance these investments. For example, should ... firm finance with debt or equity, and if debt is used, should it be long-term or short-term?
In this connection, the financial manager must deal with ... money and capital markets, where funds are raised and where the firm's securities are traded. As a consequence, financial managers of many large companies are responsible for working with investors (for example, mutual funds), bond rating agencies, stock holders, and the general financial community.
Financial managers, controllers in particular, are also responsible for financial accounting – preparation of the financial statements for ... firm, cost accounting – preparation of ... firm's operating budgets, and preparation of reports that the company must file with the various government (local, state and federal) agencies.
One of ... major documents developed and controlled by financial managers is the Enterprise Financial Plan. It comprises ... requirements for financial resources and the amounts currently available and expected in ...
future to meet them, i.e. the estimated revenues and expenditures of an enterprise within some future period of time. The enterprise financial plan determines whether ... cumulative revenues exceed the cumulative outlays at every point of time during ... plan period and whether the necessary capital structure is assured.
The enterprise financial plan is composed of ... revenue plan, ... expenditure plan and ... financing or credit plan.
Words you may need:
financial accounting финансовый учет cost accounting производственный учет file v представлять какой-л. документ cumulative adj совокупный
d) Explain how an enterprise can achieve its prime objective – profitable growth.
b) Mergers and Acquisitions
Profitable growth constitutes one of... prime objectives of most of the business firms. It can be achieved "internally", either through ... process of introducing or developing ... new products, as well as by expanding the capacity of existing products ... firm is engaged in. Alternatively, growth process can be facilitated "externally", by acquisitions of... existing business firms. This acquisition is technically referred to as mergers, acquisitions, amalgamations, takeovers, absorptions, consolidations, etc. Although ... legal procedures involved in these terms are different, these terms are often used interchangeably. It is ... finance manager's job to say "how large an enterprise should be, how fast it should grow, and how it should grow".
If ... enterprise grows "internally" it can retain control with itself during expansion and it will be free to choose how to grow. However, ... internal expansion usually involves ... longer implementation period as well as different problems connected with raising ... necessary funds. Mergers or acquisitions, in most cases, help to avoid ... financial problems and expedite ... pace of growth, by saving the time otherwise required in building up new facilities from scratch in the case of internal expansion programme.
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Mergers are typically classified into ... horizontal mergers (when two or more corporate firms dealing in ...
similar lines of activity combine together) and vertical mergers, extending to ... suppliers of raw materials or distributors. The finance manager's job is to evaluate such merger decisions.
Words you may need:
takeover n слияние компаний expedite v ускорять
pace n темп(ы) from scratch с нуля
Ex. 9. a) Supply the prepositions where necessary.
b) Say what classes of shares are usually issued by companies and what rights they give their holders.
Financial Capital
Financial capital includes the liquid assets of a company as opposed ... physical assets. Companies can have a variety of types of capital. The principal distribution is ... share capital and loan or debenture capital.
The most usual classes of share ... which the capital of a company can be divided are preference, ordinary, and deferred shares.
Preference shares have a fixed rate ... dividend. However large the profits of a company might be, the holders of preference shares are not entitled ... any additional dividends over and above the rate of dividend agreed when the shares are first issued. The holders of preference shares do not usually have any voting rights. This means that they cannot vote ... the general meetings of the company. But they do have an advantage ... the holders of all other types of shares in that the dividends due ... preference shares must be paid before any dividend is paid ... the holders of ordinary or deferred shares.
Ordinary shares entitle their owners a vote at companies' general meetings. They also have a right to elect company directors, and to receive a proportion of distributed profits ... the form of a dividend.
Issuance of shares is a source ... capital for companies. If a company wishes to raise more money ...
expansion it can issue new shares. These are frequently offered ... existing share holders ... less than their market price: this is known as a rights issue.
Companies may also turn part of their profit ... capital by issuing new shares to shareholders instead ...
paying dividends. This is known as a bonus issue or scrip issue or capitalisation issue. The source of equity is the securities market.
Loan capital is a long-term debt. Companies can raise this type of capital... clearing banks, merchant banks and even pension funds.
The composition of a company's capital is called capital structure.
Words you may need:
debenture capital заемный капитал preference shares привилегированные акции ordinary shares обычные акции
deferred shares отсроченные акции voting right право голоса
rights issue выпуск льготных акций, предлагаемых акционерам компании bonus/scrip/capitalisation issue бонусная эмиссия, выпуск льготных акций (или бесплатных акций)
Eх. 10. a) Put the verbs in brackets in the correct form.
b) Describe the development of financial management.
Prior to the 1930s the field of financial management basically (to confine) to descriptive discussions of the various financial markets and the securities traded in those markets and fund raising.
With years this field of finance (to undergo) a number of significant changes and (to become) involved with legal matters of bankruptcy, reorganization, and government regulation.
During the 1950s, for example, financial management (to expand) to include uses of a firm's funds;
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application of discounted cash flow techniques was perfected; significant breakthroughs in developing techniques for measuring the cost of capital and valuing financial assets (to make); capital budgeting (to make) progress. Later, financial researchers (to focus) on the allocation of current assets, i.e. cash accounts receivable and inventories, and fixed assets.
During the 1960s mathematical models using statistical and optimization techniques (to apply) in financial management. The financial management field witnessed an exciting period of change and growth during the 1970s when there (to be) an increasing emphasis on applying computer technology to assist in financial decision making.
The 1980s (to witness) an explosion of new financial instruments, such as options and futures contracts, that can be used to manage risk. Techniques (to change) but the objective of financial management (to remain) – to maximize the shareholder's wealth.
So the financial manager's job is to arrange for the firm to get the funds needed on favourable terms and to make sure they are used effectively.
The job must be done not only in businesses, but also in not-for-profit firms and units of government.
In a world that is increasingly affected by international trade and cooperation, financial management (to acquire) very important new dimensions.
Words you may need:
discounted cash flow будущие поступления наличными, приведенные в оценке настоящего времени optimization technique метод оптимизации
Ex. 11. a) Fill each gap with a suitable word from the box.
b)Sum up the text in 5-7 sentences and present your summary in class.
c)Explain the differences between macroeconomics and microeconomics.
operation |
policy |
familiar |
businesses |
says |
demand |
notions |
lead |
affects |
whole |
operates |
success |
microeconomics |
|
|
Contemporary financial managers should be familiar with two areas of economics – macroeconomics and ...
Macroeconomics is concerned with the over-all institutional environment in which the firm________. It looks, in other words, at the economy as a________. Macroeconomics is concerned with the institutional structure of the banking system, money and capital markets, financial intermediaries, monetary, credit and fiscal ________ and economic policies dealing with and controlling the level of activity within an economy. Since business firms operate in the macroeconomic environment, it is important for financial managers to understand the broad economic________. Specifically, they should recognise and understand how monetary policy ________the cost and the availability of funds; be versed in fiscal policy and how it affects the economy; be aware of the various financial institutions and their modes of operations to evaluate the potential investment/financing outlets; and understand the consequences of various levels of economic activity and changes in economic policy for their decision environment and so on.
Microeconomics deals with the economic decisions of_______ and organisations. It concerns itself with the determination of optimal operating strategies. In other words, the theories of microeconomics provide for effective________of business firms. They are concerned with defining actions that will permit the firms to achieve_______.
The concepts and theories of microeconomics relevant to financial management are, for instance, those involving supply and_______ relationship and profit maximization strategies, issues related to the mix of productive factors, "optimal" sales level and product pricing strategies, risk and the determination of value and the rationale for depreciating assets. In addition, the primary principle that applies in financial management is marginal analysis which ________ that financial decisions should be made on the basis of comparison of marginal revenue and marginal cost. Such decisions will________to an increase in profits of the firm. Thus, financial managers must be ________with the basic microeconomics.
Words you may need:
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to be versed (in) разбираться (в чём-л.) outlets n pl (зд.) возможности
rationale n основная причина, логическое обоснование marginal analysis анализ по предельным показателям marginal revenue предельный доход
marginal costs предельные издержки
DISCUSSION
Ex. 12. a) Read the texts.
b)Say what you think about the conflict between managers and shareholders.
a)Corporate Governance
The financial manager's duties include different tasks aimed to maximize the shareholders' wealth.
It has been observed, however, that in practice not all management decisions are consistent with this objective.
In other words, there often is a divergence between the shareholder wealth maximization goal and the actual goals pursued by management.
Instead of seeking to maximize shareholder wealth, management try to satisfy their own welfare. In doing so managers are concerned with their job security. The concern for long-run survival may lead management to minimize (or limit) the amount of risk incurred by the firm, since unfavourable outcomes can lead to their dismissal or possible bankruptcy for the firm.
The existence of divergent objectives between owners and managers is an example of problems arising from agency relationships. Agency relationships take place when one or more individuals (the principals) hire another individual (the agent) to perform a service on behalf of the principals.
In an agency relationship, decision-making authority is often delegated to the agent from the principals. Conflicts between corporate managements and shareholders surfaced as a major public policy issue in the
1980s. The potentially adversarial principal-agent relationship between corporation owners and managers has long been recognized. In the last decade, however, two major developments brought this issue to greater prominence.
First, corporate managements, responding to a wave of hostile corporate takeovers, instituted various defensive strategies. These defences were designed to prevent the target companies from being acquired easily, thereby protecting the jobs of existing management. Indeed, they appear to have had the intended result of making those companies worth less to prospective acquirers. However, they also reduced the value of the companies to their existing shareholders.
Second, large shareholders came to realize that they wielded considerable corporate voting power. The growth of institutional investors has concentrated corporate ownership in the hands of a relatively few organizations. The resources of these large organizations enabled them to actively oppose management decisions that diminished the value of their investment. Corporate governance has become the catchall description for institutional investor efforts to influence the fundamental business policies of corporate managements.
Words you may need:
corporate governance руководство корпорациями to be consistent (with) соответствовать divergence n отклонение, расхождение
survival n выживание
to incur a risk нести риск
agency relationships взаимоотношения между агентом и принципалом adversarial adj содержащий элемент соперничества
wield v владеть, иметь в руках (власть, влияние и т.п.) catchall adj всеобъемлющий, полный
с) Read the text and say how investment risks can be reduced:
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b) Investment Management
Investment management relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups: long-term assets and short-term, or current assets.
Nowadays investors face a lot of choices. Along with stocks and bonds of large companies and government debt securities, investors can now own stocks of small companies, the stocks and bonds of companies headquartered in foreign countries, high-yield bonds, collateralized mortgage obligations, floating-rate notes, swaps, puts, calls, and futures contracts. The list is seemingly endless and it continues to grow. Furthermore, the ability to purchase these securities has become both less expensive and more convenient with the advent of advanced communications and computer networks. The challenge to investors is increasing because the investment environment is becoming more and more complex. With the rapid evolution that the investment industry is undergoing, new securities, markets, investment management techniques have appeared.
When making decisions with regard to what marketable securities to invest in, how big the investment should be, and when the investment should be made, the investor:
•sets investment policy and determines objectives,
•performs security analysis,
•constructs a portfolio,
•revises the portfolio,
•evaluates the performance of the portfolio.
For any type of security, the risk can by reduced by investing in more than one firm. This is called "diversification". An investor with stocks and bonds issued by a number of firms is said to have a diversified portfolio.
Diversification does not eliminate all risks. Events like recession, high interest rates, and so on may depress profits and stock prices of all firms.
Words you may need:
collatcralized mortgage obligation облигация, обеспеченная пулом ипотек floating-rate note облигация с плавающей ставкой
advent n приход, появление
to construct a portfolio создать портфель to revise a portfolio пересмотреть портфель to depress the profits снижать прибыль
Ex. 13. Read the dialogues, sum up their content and act them out.
a) Investment Decision Making
Financial manager. Our company is working on an investment project. What do you think we should take into account in our work?
Consultant: First, I'd like to know something about your project. Could you describe it in general terms?
P.M.: Yes, sure. The project is aimed at investing in fixed assets. The market research we've carried out has revealed that the demand for our products exceeds our supply. So we are intending to buy new equipment abroad, to expand our production facilities and to increase output, which will allow us to increase sales and get higher profits.
Con.: Have you drawn up the capital budget?
P.M.: We are not through yet, but we've calculated the project outlays, estimated the anticipated flow of future benefits from our investments, operational and financial activities.
Con.: What time period do your calculations cover?
P.M.: We proceed from standard service life of major technological equipment, with adjustment for depreciation. In our case, it is five years.
Con.: Any project needs funding, doesn't it? What sources of financing do you intend using?
P.M.: Internally generated funds and borrowed resources. We are going to issue shares and obtain long-tern Rouble and hard-currency loans. The estimates of the actual cash flow has been based
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on this plan.
Con.: You've adjusted your calculations for inflation, haven't you? What if the inflation rate happens to be higher than the interest rate? You may have problems with creditors.
P.M.: Yes, to avoid the situation, commercial banks insist on monthly interest payments.
Con.: Speaking about the loan repayment I would like to know which loan will be repaid first – the Rouble or the hard currency loan.
P.M.: The one with a higher interest rate.
Con.: Right. Now that you've estimated the real cash flow, you should prepare your company's profit and loss statements as well as balance sheets for each stage of the project.
P.M.: Well, I agree that the profit and loss statement is useful for the evaluation of the project. Is the balance sheet necessary?
Con.: Manuals on project evaluation recommend to do it, UNIDO's manuals in particular. The balance sheet allows to forecast the company's financial position during various stages of the project implementation. Besides, having done it you'll be able to check your estimates.
P.M.: I see your point. The statements are also important from the point of view of taxes. What else should we focus on while working on the capital budget?
Con.: I know from my experience that the key problems in capital budgeting are forecasting sales, calculation of the cost of capital as well as analysis and estimates of cash flow risks.
P.M.: Thank you. I'll tell my staff to be most careful about these things.
b) Investment Project Appraisal
P.M.: How can an investment project be evaluated?
Con.: There are different techniques. Most common today are UNIDO techniques based on payback period, net discounted cash flow and internal rate of return.
P.M.: What criteria should be used in our case? What do they imply?
Con.: Let's start with the payback period, which is the number of years required to recover the investment needed for the project.
F.M.: Experience has shown that the payback method does not provide reliable information about the project's contribution to the market value of a company. Besides, it disregards time value of money. It's common knowledge that the value of our Rouble today is more than its value to be received after some time.
Con.: Yes, the sum of money to be received in future is less valuable than it is today. P.M.: What can you say about the other criteria?
Con.: In the opinion of a number of scientists, net discounted cash flow appraisal, based on cash flow discounted at a certain discount rate, is a more effective technique. Net discounted cash flow gives a wider picture of investment results.
P.M.: From my experience, I, for one, think that this technique is more reliable because it takes into consideration all benefits and costs occurring during the entire life of the project.
Con.: Net discounted cash flow is a difference between the cash flow over the project life expressed in terms of its present value and investments in the project.
P.M.: I see. How can the third criterion be determined, I mean the internal rate of return? Does this method have any advantages over the others?
Con: The IRR method also considers the time value of money by discounting the cash streams. But the rate of return is not predetermined. The IRR is based on facts which are internal to the proposal. The idea of the method is that the internal rate of return is equal to the maximum borrowing interest rate that can be repaid over the period of the project life, if the project is financed only from borrowed funds. So the IRR is a measure of investment effectiveness.
P.M.: Which method, do you think, suits us best?
Con.: It's a difficult question to answer. The choice of the method depends on the company's position, size of the investment project, the situation in financial markets. It would be a good idea to use all the methods.
P.M.: It's a hell of a job, isn't it?
Con.: Yes, but these criteria can be easily determined using modern computer equipment.
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Words you may need:
capital budget смета капиталовложений service life срок службы
depreciation n износ, амортизация
profit and loss statement счет прибылей и убытков
UNIDO (United Nations Industrial Development Organization) Организация Объединенных Наций по промышленному развитию
manual n руководство, справочник cash flow risks риск денежного потока payback period срок окупаемости
discounted cash flow будущие поступления наличными, приведенные в оценке настоящего времени internal rate of return внутренняя норма доходности
time value of money временная стоимость денег present value приведенная стоимость
Ex. 14. Give extensive answers to these discussion questions:
1.How is financial management organized in a typical firm?
2.What sources of financial resources are used by businesses? How do business firms use their funds? How can they increase their capital?
3.Explain why all firms need both fixed and working capital.
4.How are different assets, say current or fixed, managed?
5.How are financial risks managed?
6.What do financial managers take into account when they try to strike the right balance between different sources of funds, e.g. between longand short-term debt or between debt and equity?
7.What formula for finding the best financial structure for a firm would you suggest?
8.How can investment projects be evaluated?
9.What most typical investment strategies are used by business firms?
10.Financial analysis is the use of financial data to evaluate the financial position of a firm. How does it work in practice?
11.The purpose of accounting is to keep track of sources and uses of funds and to give an accurate picture of the firm's financial position. What accounting data are used in financial management?
In order to get prepared for participation in the class discussion of these questions, write a short paragraph on the following:
a)What questions do financial managers (treasurers, controllers) face daily?
b)What financial ratios are taken into account by managers to enable them to conduct their business effectively?
c)What do capital structure and cost of capital imply?
Ex. 15. Prepare a short talk on the following:
a)The main sources and uses of funds for a business firm.
b)The roles of the chief financial officer, the treasurer and the controller.
c)Current and fixed assets and their management.
d)Leverage and its role in striking a balance between debt and equity.
e)Why do you think some companies choose to obtain working capital through a sale of stock instead of going to some other sources of funds? Do they try to achieve a better balance between debt and equity?
Ex 16. While reading business news look for items about firms that are losing money and firms that are doing well. Make your conclusions about the financial management of the firms. One of the conclusions is likely to be that the key to success is upgrading professional skills of the employees. What skills are likely to be in demand in the next five years – computer literacy, knowledge of foreign languages, anything else?
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There are a lot of jobs in finance and accounting for the simple reason that all types of organizations have financial needs. What careers in finance will be attractive: economists, bank managers, bank tellers, securities sales workers, insurance agents, brokers, actuaries, underwriters?
READING PRACTICE
Ex. 17. Read the text quickly to find the sentences giving a definition of the cost of capital:
Capital Structure and Cost of Capital
The capital structure refers to the weight which different types of capital have in the total capital employed. The question of capital structure becomes particularly significant when a choice of debt and equity capital is made. The relationship between the long-term debt and equity capital invested in the business is called gearing.
Gearing is the indicator of the relative proportion of debt capital and equity capital. The higher the proportion of debt, the more highly geared is the company. The degree of gearing affects the overall cost of capital.
The conventional view is that at very low levels of gearing debt capital will be cheaper than equity capital because the level of risk is low, with debt interest being a prior charge. The overall cost of capital is thus brought down with the use of debt. As the debt-equity ratio increases, interest becomes a bigger proportion of expected profits. The higher the gearing, the more exposed the company is at times of economic difficulty.
The concept is difficult to measure in practice. The most elementary measure is nominal value of fixedinterest capital versus nominal value of equity capital.
The ratio has limitations as it ignores some types of interest-bearing finance such as bank loans and mortgages.
* * *
Cost of capital is the cost measured as a percentage rate of the various sources of capital required to finance capital expenditure. All sources of capital have a cost which can be a direct one as, say, with a loan or an opportunity cost as, say, with retained earnings. At any time a company's cost of capital will be the weighted average of the cost of each type of capital: ordinary shares, preference shares and long-term debt.
Companies have a choice of the capital structure which they adopt and will generally try to minimize the overall cost of capital in making their choice.
Ex. 18. Read the text quickly to find the answer to the following question:
What happens after a winding-up order is granted by the court?
Liquidation
If a company is unsuccessful in its operations, or if for any other reason it decides to go out of business, it goes into liquidation. There are two kinds of liquidation – voluntary and compulsory.
Voluntary liquidation may be brought about by the shareholders passing a resolution directing the company to go into voluntary liquidation. When this happens one or more liquidators are appointed whose duties are to realize (to sell) the assets, pay all liabilities, and distribute the balance assets of the company, if any.
Compulsory liquidation can be brought about for a variety of reasons connected with the failure to fulfil the rules laid down by the Companies Act. But a company is usually compulsorily liquidated by order of the court given on a creditor's petition, when the creditor is unable to obtain satisfaction of his debt from the company.
When a winding-up order is granted by the court, the directors are deposed, the employees of the company receive notice that their agreements with the company are at an end, and the company's business is stopped.
Whatever assets remain after the claims of all the creditors have been settled, will be distributed among the shareholders in accordance with the rights carried by their shares.
Ex. 19. Read the text quickly to find the part of the text explaining how managers can solve the problem of a cash shortfall.
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The Cash Flow Concept
The concept of cash flow is one of the central elements of financial analysis, planning, and resource allocation decisions. Cash flows are important because the financial health of a firm depends on its ability to generate sufficient amounts of cash to pay its creditors, employees, suppliers, and owners.
Only cash can be spent.
Sometimes firms are expected to have an excellent year but unexpectedly cash shortages arise. Shortages of cash may arise for several reasons.
First, not all sales are expected to be for cash or to be credit sales (accounts receivable) collected during the year.
Firms may have debt repayment obligations. Payment of taxes, interest and a cash dividend may further reduce the firm's cash position.
The firm's managers have to arrange to meet this cash shortfall through actions such as borrowing, the sale of new common equity, a reduction in dividend payments, sale of accounts receivable, or increases in accounts payable.
Preparation of a cash budget is useful in helping a firm plan for its cash needs over some future period of time.
Financial managers know that generally accepted accounting principles (GAAP) provide considerable latitude in the determination of the net income of a firm. As a consequence, GAAP concepts of net income do not provide a clear indication of the economic performance of a firm. Cash flow concepts provide a clear measure of the performance of a firm.
To evaluate the cash flows generated from the firm's activities managers use the net present value concept. Net present value represents the difference between the present value of future cash flows associated with a
project and the present value of the initial investments to acquire that project. It is the most commonly used technique to evaluate capital budgeting proposals.
UNIT 13. ACCOUNTING
A. TEXT
ACCOUNTING PRINCIPLES AND CONCEPTS
The accounting system in any given country is one of the key elements of the economic system. It is determined to a significant extent by the level and direction of the economic system's development.
The most important theoretical concept of the Anglo-American accounting may be summed up as follows: the subject of accounting is the calculation of the financial results of an economic entity's business activity.
Accounting is used to describe the transactions entered into by all kinds of organizations.
Accounting can be divided into three phases: capture, processing and communication of financial information.
The first phase, the process of capturing financial information and recording it, is called book-keeping. Accounting, in the true sense of the word,1 extends far beyond the actual making of records. It includes their analysis and interpretation, it shows the relationship between the financial results and events which have created them.
Accounting can show the managers or owners of a business whether or not the business is operating at a profit, whether or not the business will be able to meet its commitments as they fall due.
Accounting is based on the accounting equation, which states that a firm's assets must equal its liabilities plus its owners' equity.
Assets and liabilities, profits or losses are listed in financial statements. The two main types of financial statements are the balance sheet and the income statement (profit and loss account).
The balance sheet lists a firm's assets, liabilities and owner's equity at a point of time.2
Changes in the balance sheet are made according to the principle of double-entry bookkeeping. This principle made its appearance in the 13th century in Northern Italy. It was improved and disseminated at the end of the 14th century by the work of Luca Pacioli, a monk and a university teacher. This principle states that each transaction must be recorded on the balance sheet as two separate entries so that the accounting equation
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