LESSON 7
CORPORATE FINANCE
DIALOGUE
Karen : thanks for coming over, Peter. I’m sorry I couldn’t get to your office today.
Peter : that’s all right. Its not unusual for stockbroker to keep these hours. And besides,
you’re and old friend.
Karen : have a seat. Let’s start by having some coffe.
Peter : good.
(later)
Karen : so, as I was saying, peter, I think this might be a good time for me to invest in
that computer company. As my stockbroker, what do you think?
Peter : I think they’re doing extremely well. And they would probably welcome your
investment.
Karen : if they’re going so well. Why do they need my investment?
Peter : all right. Let me explain a little about corporate finance.
Karen : go a head. When it concerns my money, I’m very interested.
Peter : first of all, corporate enterprises need financing, especially if they want to
expand. Now, there are to basic types of financing.
Karen : and what are they ?
Peter : equity and debt.
Karen : what’s the difference?
Peter : the use of money supplied buy the owners of a business is called equity funding,
And the use of money supplied buy loans is call debt funding.
Karen : so hat am I ,as and investor?
Peter : well, you become a partial owner of the company and receive equity .you get
Shares or sertificates of common stock to represent your pourtion of ownership.
Karen : that’s where you come in , right? buying the stock for me.
Peter : right.by the way, I brought a copy of the company’s annual report over for you to
Look over. You should read it very carefully.ask me if you have any questions
About anything in it.
Karen : thanks, peter.i will.say, does this company pay dividends on its stock?
Peter : yes.As a matter of fact,I’ve looked into this organization very carefully.i can
Report that they have good management,their business is doing quite well and the
Value of their stock has been rising.i consider tis to be an excellent long-term
Investment,as far as I’m concerned.
Karen : but suppose I want to sell my shares soon?
Peter : no problem.you would no doubt make a profit on the sale.but I think you might
Want to keep this company in your portfolio.
Karen : I must say that you’ve always given me good advice.well,my advice now is to
Study the company’s annual report.you need several days to do that.then we’ll
Talk some more.
EXERCISE 1 : STRUCTURAL PRACTICE
Notice this sentence from the conversation:
Let start by having some coffee.
Note the (-ing) form after the preposition.use this form to respond to the following cues:
Examples: how should I invest my savings?/buy common stock I should invest my savings by buying common stock.
How can they raise capital?/issue shares of stock
They can raise capital by issuing shares of stock.
- How can we finance this project?/borrow from the government
- How can our company make a profit?/raise investment capital
- How can our business get funding?/offer equiy to interested friends
- How can he sell more shares of stock?/offer a dividend
- How should we do fisrt?/look at annual report
EXERCISE 2: SUBSTITUTION DRILL
STATEMENT: Equity should be used for long-term investment.
Example: capital
Capital should be used for long term investment.
- stocks 5. projects
- can’t 6. short-term
- debt funding 7. ought to
- might 8. borrowing
EXWRCISE 3:FUTRHER STRUCTURAL PRACTICE
Notice this sentences from the conversation:
You need several days to do that
Use this structure to respond to the following cues:
Example: it takes several days to do that
You need several days to do that
- it will take the rest of the year to pay off our debs.
- it look him several days to inspect he documents
- it will take her a month to raise the capital
- it never takes me long to repay a loan
- it takes us a lot of time to discuss topics in finance
- it tool us the entire morning to finish the discussion
Corporations need financing for the purchase of assets and the payment of expense. The corporation can issue share in exchange for money or property (sometime referred to as equity funding).the holders of the share together from the ownership of the company. Each share is represented by a sock certificate. This is negotiable, which means that it can be bought and sold. The value of a share is determined not only by the net assets divided by total number of share outstanding, but also by any particular rights it givens to shareholders. The greater the success of the company, the more value the share usually have.
A corporation can also get capital funds by borrowing. This is called debt funding. When corporation borrow money, they given notes or bonds, which are also negotiable. However, interest has to be pain out whether business is profitable or not.
Management must consider both the outflow and inflow of capital funds running the corporation. The purchase of inventory and supplies, or payment of salaries, results in an outflow. The sale of goods and service result in an inflow. The the long run, in the inflow must be greater than the outflow to result in a profit. In addition, a company must deduct its costs, expense, losses on bad debs, interest on borrowed capital and other items in order to determine whether its financial management has been profitable. The amount of risk involved is an important factor determining fund raising and whether a particular corporation is a good investment.
COMPREHENSION QUESTIONS
- why do all corporate enterprises need financing?
- what is meant by he term equity funding?
- how is the value of a share of certificate usually detemined?
- what is debt funding?
- what are some activities that produce an inflow of capital? An outflow of capital?
- what happens in a business if the inflow of capital is out not greater than the outflow?
- discuss t e term funding, asset, inflow and outflow in relation to a company you know about?
VOCABOLARY PRACTICE
From the list below select a word to fit each blank space in the sentences. Use each word only once.
Equiy interest inventory funding
Negotiable capital risk inflow
- the current assets of a company usually include cash and __________
- _________ funding means financing by the owner of the company
- they need ___________in order to purchase supplies
- of course you can sell your share of stock, they’re _____________
- we want o make a profit, so we must be careful about investing in a company that has much____________
- financing by borrowing funds is call debs___________
- where did they borrow the money and how much ___________ will they pay?
- in the long run, the___________ must be greater than the outflow to result in a profit
