Russian: Are there any guidelines which enable the businessman to conduct his affairs efficiently and profitably and to compare his company's performance with those of other companies?
American: Yes, there are. One of the major tools is ratio analysis. Ratios make it easy to see trends, risks and to assess the results. All most important decisions are based on ratios.
R.: What are the most commonly used ratios?
Am.: We in the US operate with three main categories of ratios. We use ratios measuring solvency, efficiency, and profitability.
R.: Could you give some examples of each?
Am.: Yes, sure. Let's begin with measuring solvency.
R.: Solvency is the ability of a firm to meet its short-term liabilities as they come due, isn't it?
Am.: Yes, you are absolutely right. And one of the most commonly used measures of solvency is the current ratio.
R.: How is it found?
Am.: This is the ratio of all current assets, liquid assets, accounts receivable and inventories to current liabilities.
R.: When is a firm considered solvent on this measure?
Am.: If its current ratio is 2 to 1 or above. There is another ratio related to this one. It's the-debt-to-equity ratio. It is found by dividing total debt by the equity.
R.: I see. It's the indebtedness of a firm compared to its equity capital. But it's really more a measure of leverage than a measure of solvency.
Am.: Yes, you are right in a way. A highly leveraged company is one with a high proportion of bank loans to equity. But the ratio has some bearing on solvency, too. A low debt-to-equity ratio makes it easier for a firm to borrow to meet its short-term cash needs.
R.: That's clear. A ratio higher than 1 to 1 would make a firm a risky borrower. And what ratios help to measure a firm's efficiency?
Am.: One such ratio is that of sales to inventory, called the inventory turnover ratio.
R.: We say that stock or inventory has "turned over" when it has been sold and replaced with new stock. If we want to double our profit one way is to double the rate of stock turnover.
Am.: Yes, and this ratio varies widely from one industry to another. We can't say whether the ratio is good or poor until we know the product we are discussing. And now let's turn to measuring profitability.
R.: It's the figure that really matters in the end to any businessman, isn't it?
Am.: Yes, practically there are two measures that compare profit to the capital invested in a firm. One such measure is return on equity and the other is return on assets. Both are very important for investors.
JR.: No doubt. Knowing the payback of an investment is important because the earlier the payback, the quicker the money can be reinvested, and also the less the risk investors are exposed to.
Am.: You are right, the ratios show how the capital "works". Investors' decisions totally depend on the ratios.
Ex. 1. Answer these questions:
1. What financial concerns face every enterprise?
2. What problems do finance managers face daily?
3. What does financial management involve?
4. What are financial managers concerned with?
5. What are the major components of a balance sheet?
6. How is the finance function most commonly organized?
1. What is a financial ratio?
2. What do financial ratios help to measure?
3. What groups of ratios have been developed?
1. Can you give examples of ratios measuring solvency, efficiency
Ex. 2. Give derivatives of:
management n effectively adv maintain v acquisition n
behave v expose v determine v control v
convince v relationship n quote v indicate v
profit n assess v analysis n measure n
receive v debt n risk n turn v
replacement n invest v pay back v total n
Ex. 3. Find English equivalents for the following Russian phrases from the text:
Ex. 4. Say in a few words what the main text is about.
Ex. 5. Sum up the content of the dialogue.
Ex. 7. Work on vocabulary and grammar.
a) Study the key words of the unit in the dictionary at the back of this book:
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
to adjust shareholder wealth
to manage inventories
a) Supply the articles where necessary.
b) Write down 3-5 questions about the texts.
c) Say in what activities financial managers are involved.
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.
The Exam questions
The subject “Domestic and foreign policy of the country of studied language”
The educational program «5B050200-Political Science», Bachelor students, 3rd year of study,
for Kazakh, Russian groups
Describe tasks and main objectives of the discipline “Domestic and foreign policy of the country of studied language” (on the example of USA)
Critical analyze political history of formation of the USA as a state: basic postulates the creation of a democratic society.
Define and describe the main purpose of the course "Domestic and foreign policy of the country of studied language”.
Explain what is direct democracy and indirect democracy? Compare a both of the types of democracy. Give an example.
Explain difference between presidential democracy parliamentary democracy. Give an example.
Identify, historical role of the 1-st Continental Congress in the political history of the U.S.
Identify, historical role of the 2-nd Continental Congress in the political history of the U.S.
Describe the main types of federalism in the political theory.
Critical analyze role and peculiarities of electoral process in the USA.
Explain the main role of “Stamp Act” in political history of US.
Give an example of system checks and balances in the domestic policy of USA.
Describe the distribution function powers authorities between 3 branches of power within American national power. In the scheme form.
Describe and explain the notions “native Americans”, and “Settlers in the new world”.
Describe the role of the revolutionary war against the British Crown in the history and formation process of domestic policy of the USA.
Explain the essence of basic principles of a "democratic ideas" proposed by father-founders of American state.
Identify term “American federalism”. Explain essence of national peculiarities of American Federalism.
Differences and similarities of “American federalism” between another types of Federalism.
Explain the term “Unitary” state device. Describe main characteristics.
Explain the term “Confederation” state device. Describe main characteristics.
Describe the role and authorities of Secretary of State in the implementation of foreign policy.
Explain difference between domestic policy and foreign policy. Give an examples.
Define and describe main tasks of modern American foreign policy.
Critically analyze the concept of program “Medicare” in the domestic policy of USA.
Identify and explain main tasks of contemporary American domestic policy.
Who are donkeys and elephants in the national policy of USA? Describe main principles of both of the political parties.
Give definition and explain political role and authorities of Legislative power in USA (on example of Congress).
Give definition and explain political role and authorities of Executive power in USA (on example of Government).
Give definition and explain the judicial (juridical) branch of political system in the USA.
Identify and explain political role of “Declaration of Independence”. Give an example from political history of USA.
Characterize one of the basic directions of foreign policy of US: Initiatives of International cooperation for the support of Peace.
Please, indicate and explain political hierarchy of management in the U.S. In the scheme form.
Define and describe term: “taxation without representation”. (causes and results).
Explain political role and contribution of G. Washington for benefit of democracy in the USA?
Explain political role and contribution of A. Lincoln for development American society.
Critical analyze the debt obligations inner of the society, repercussions and today's reality of USA.
Explain the term “Pax Americana”. Give an Example.
Describe the notion “Westernization”. Give an example.
Define and describe subcultural category of “American life style”.
Can you explain political contribution of Martin Luther King junior’s proposals for the creation of equal rights in the America?
Give definition and explain basic principles of “Human rights”. Give an example.
Define and describe political influence of movements for the improve democratic principles in the US. On example of historical facts.
Explain main details of the Bill of Rights. Describe amendments to the Constitution of USA.
Define and describe American “Common Sense”.
Define and describe relationships between USA and China. Characterize, essence of cooperation in economic sphere.
Define and describe relationships between USA and EU countries. Characterize, essence of cooperation in economic and political sphere.
Define and describe relationships between USA and Russia. Characterize, essence of cooperation in political sphere.
Give an example of “world democratization process” with participation of USA.
Define and explain notion of national wealth. On example of program “Medicaid” (USA).
Indicate differences between federation types of government: between USA and Russia.
Describe, analyze, mechanisms of American ideology the fight against terrorism.
Explain an International military activity of US in the contemporary world: on examples of foreign policy of USA.
Write and indicate, your vision on the topic: The USA and contemporary world community. Democracy, peace by American eyes.
Write and indicate, your vision on the topic: The military cooperations USA and NATO.
Describe and explain peculiarities multilateral relations between Kazakhstan and US: general objectives, expectations.
Identify and explain general similarities and differences between political systems of Kazakhstan and USA.
Your vision about role of USA in the contemporary world: responsibility of USA in an insuring International stability and security.
Give an overall assessment what you have mastered by study of this course? (for example: I enriched my knowledge related with American national history and about domestic policy:
1.-I had a bad pronunciation, now I have a some improve., etc).
2.- and etc
Describe and indicate your vision about the USA's political presence in the Central Asia? Define, general pros and cons.
Compare compliance human rights in the Kazakhstan and USA. Give an examples..
In a nutshell indicate and explain, main directions and targets of modern american foreign policy. Give an example.