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Corporations need financing for the purchase of assets and the payment of expenses. The corporations can issue shares in exchange for money or property. Sometimes it is called as equity funding. The holders of the shares form the ownership of the company. Each share is represented by a stock certificate, which is negotiable. It means that one can buy and sell it. The value of a share is determined by the net assets divided by the total number of shares outstanding. The value of the share also depends on the success of the company. The greater the success, the more value the shares have.

A corporation can also get capital by borrowing. It is called debt funding. If a corporation borrows money, they give notes or bonds. They are also negotiable. But the interest has to be paid out whether business is profitable or not.

When running the corporation, management must consider both the outflow and inflow of capital. The outflow is formed by the purchase of inventory and supplies, payment of salaries. The inflow is formed by the sale of goods and services. In the long run the inflow must be greater than the outflow. It results in a profit. In addition, a company must deduct its costs, expenses, losses on bad debts, interest on borrowed capital and other items. It helps to determine if the financial management has been profitable. The amount of risk involved is also an important factor. It determines the fund raising and it shows if a particular corporation is a good investment.

Active Vocabulary

purchase покупка, купівля, придбання

payment of expenses сплата видатків

property власність, майно

equity funding акціонерний (пайовий) спосіб утворення

грошового фонду підприємства

debt funding утворення грошового фонду підприємства за

допомогою позики

holders of the shares акціонери

stock certificate сертифікат акцій

negotiable обіговий, той, який можна купити, продати

net assets вартість майна не враховуючи зобов’язань

bond боргове зобов'язання, облігація

note боргова розписка

interest частка, фіксований процент

to pay out виплачувати

to run a corporation керувати корпорацією

inflow приплив (грошей)

outflow витік (грошей)

inventory матеріально-виробничі запаси, інвентар

supplies ресурси

debt борг

goods товари

Comprehension Questions

1. Why do all corporations need financing?

2. What does equity funding mean?

3. What does debt funding mean?

4. How is the value of a share determined?

5. What activities produce an inflow and outflow of capital?

6. What can happen if an enterprise has a greater outflow of capital than an inflow?

7. Why is the risk involved an important factor in determining fund raising?

Vocabulary Practice

Choose the necessary word and put it in the sentence.

1.... funding is a financing formed by borrowing. 1 equity

2. They have borrowed much money and they have to pay a big.... 2 negotiable

3. Financing by shares is called... funding. 3 interest

4. That is a very profitable deal, for that purpose we need extra .... 4 inventory

5. You can sell your shares and ……. 5 funding

They are.….… 6 inflow

6. The current assets of a company usually include cash and.... 7 bond

7. As a result of this deal we' 11 have greater... than outflow. 8 debt

Dialogue

Mary It' s so nice to see you, Frank. Sorry, I couldn't come to your office today.

Frank Never mind. Have a seat. Let' s start by having some coffee. Later.

Mary So Frank. I guess it might be right time for me to invest in that computer

company. As my stockbroker, what can you suggest?

Frank I am sure they are doing extremely well and they would welcome your investment.

Mary But why do they need my investment if they are doing so well?

Frank O.K. I think I should explain you a little about a corporate finance.

Mary Go ahead. If it concerns my money I am always interested.

Frank If a corporate enterprise wants to expand it needs financing.

Mary You are right. Frank So there are two basic types of financing: equity and debt.

Mary What's the difference between them?

Frank If the money is supplied by the owners of a business it is called equity funding. 

And the use of money supplied by loans is called debt funding.

Mary So as investor, what am I?

Frank Well, as an investor you become a partial owner of a business and receive equity. 

You get shares or certificates of common stock which represent your portion of

ownership.

Mary You did right buying the stock for me. By the way, are there any documents which show the financial state of the company?

Frank Oh yes. You've just reminded me. I’ve brought a copy of the company's Annual

Report for you to look over. You should read it very carefully. And if you have

something to ask do it, please.

Mary Thanks a lot, Frank. I will. Does this company pay dividends on its stock?

Frank Yes. In fact, I studied their Annual Report and I can tell that they have good

management. Their business is doing very well, the value of their stock has been

rising. It can be an excellent long-term investment, I am sure.

Mary But if I want to sell my shares very soon?

Frank No problem. Undoubtedly you can make a profit on the sale. But it seems to me

you'll want to keep this company in your portfolio.

Mary Thank you for your advice. You are wise as usual.

Frank Well, my advice now is to study the company's Annual Report. You need several 

days for that. Then we'll meet and talk again.

Active Vocabulary

a stockbroker біржовий маклер

if it concerns smth якщо мова йдеться про

loan позика

partial owner співвласник

Annual Report річний звіт

to pay dividends платити дивіденди

long-term investment довгостроковий внесок

to make a profit on the sale отримувати прибуток з продажу

Vocabulary Exercises

Exercise 1. Make up a sentence according to the model.

Model: How should the company pay the expenses? (borrow from the

government.

The company should pay the expenses by borrowing from the government.

1. How can we form an equity funding? /issue shares/.

2. How can a business sell more shares of stock? /offer a dividend/.

3. How should we know about the financial state of the company? /look over the Annual Report./

4. How should he invest his savings? /buy common stock/.

5. How should they make people buy their bonds? /increase the interest/.

6. How can this company make a profit? /raise investment capital/.

Exercise 2. Choose the sentence from the dialogue. You need several days for that. Use this structure to respond the following sentences.

Model: It takes a month to sell the bonds.

You need a month to sell the bonds.

1. It will take a half of the year to pay off the debts.

2. It takes her several days to count up net assets.

3. It won't take the company much time to repay the loan.

4. It will take him the rest of his life to learn how to run the corporation.

5. It takes them two days to sell the goods.

6. It will take them much time to decrease the outflow.

7. It will take him a month to raise the capital.

Exercise 3. Answer the questions.

1. What kind of funding is preferable: equity or debt?

2. What shares of what enterprises of your town would you buy? Explain why.

3. Imagine that your business is going to get capital funds by borrowing. What bond

interest would you charge? Explain why.

4. What should you do to produce more inflow of capital?

5. How can you calculate the net assets of your enterprise?

6. What traits of character does a stockbroker need?

Exercise 4. Translate from Ukrainian into English.

1. Нашому підприємству потрібні грошові фонди для покупки обладнання.

2. Я надаю перевагу акціонерному способу утворення грошового фонду підприємства. Він залучає більшу кількість капіталу. 

3. Акції й облігації можуть бути уступлені, куплені чи продані.

4. Я хочу купити десятипроцентні облігації.

5. Ми маємо намір виплатити всі борги до початку фінансового року.

6. Ти отримуєш гарний прибуток від продажу цих товарів.

7. Він є співвласником компанії SONY.

8. Покупка акцій цієї компанії – це гарний довгостроковий внесок.

9. Якщо мова йде про мої гроші, я вивчу річний звіт компанії.

Grammar Exercises

Exercise l. Make the sentences negative.

Model: This bank was making loans to corporations during two months last year.

This bank wasn't making loans to corporation during two months last year.

1. They were discussing the роssibility of the purchase of inventory from 5 till 6 p.m. yesterday.

2. He was running the corporation during two months.

3. During our last classes the lecturer was speaking about equity funding.

4. Our accountant was calculating assets liabilities and net worth two days before yesterday.

5. They were electing the new Board of Directors for two hours at their annual meeting.

Exercise 2. Put up four questions of different types (general, special, disjunctive, alternative) to each sentence.

Mоdel: The company was doing extremely well when he was the manager.

1. Was the company doing extremely well when he was the manager?

2. When was the company doing extremely well?

3. The company was doing extremely well when he was the manager,

wasn't it?

4. Was the company doing well or badly when he was the manager of the

company?

1. I was examining the Annual Report when Mr. Stevenson called on me.

2. She was making a profit on the sale of the goods till she could get them.

3. He was holding a position of a stockbroker when I met him last year. 

4. The shop was attracting many customers, when it was supplied by famous companies.

5. They were investing money in this business for two years.