Government intervention

Governments and central banks sometimes try to change the value of their currency. They intervene in exchange markets, using foreign currency reserves to buy their own currency -in order ro raise its value - or selling to lower it. The resulting rates are known as managed floating exchange rates. But speculators generally have a lot more money than a government has in its reserves of foreign currency, so central banks or governments only have limited power to influence exchange rates. 44.1 Arc...

The financial analysis

The financial analysis gives details of the historical performance, if it is an existing company, and describes existing finance and assets. Ir explains why the business needs funds, and gives sales forecasts (the sales the business expccts to achieve in a particular period of time), projected or expected financial statements (profit and loss account, cash flow statement, and balance sheet), and projections for future income. It will probably include .1 breakeven analysis, and an analysis of...

Laws rules and standards

In most continental Huropean countries, and in Japan, there are laws relating to accounting, established by the government. In the US, companies whose stocks are traded on public stock exchanges have to follow rules set by the Securities and Exchange Commission (SEC), a government agency. In Britain, the rules, which are called standards, have been established by independent organizations such as the Accounting Standards Board (ASB), and by the accountancy profession itself. Companies are...

In 2000 the global value of was over 220 billion j

22.3 Match the words in the box with the definitions below. I jook at. A, B and C. opposite to help you. 22.3 Match the words in the box with the definitions below. I jook at. A, B and C. opposite to help you. 1 a company of experts providing professional advice to businesses for a fee 2 a financial institution that invests money to provide retirement income for employees 3 deciding what a company is going to do in the future 4 people who try to predict what will happen in the future 5 a...

Different interest rates

The discount rate is the rare that rhe central bank sets to lend short-term funds to commercial banks. When this rate changes, the commercial banks change their own base-rate. the rate they charge their most reliable customers like large corporations. This is rhe rate from which they calculate all their other deposit and lending rates for savers and borrowers. Banks make their profits from the difference, known as a margin or spread, between the interest rates they charge borrowers and the...

Answer key

1.1 1 social security, salary 4 mortgage 7 tax 2 cam, commission 5 currency 8 rent 3 bonus 6 overtime 9 pension 1 -2 1 false - most money consists of bank deposits 2 true - salaries are usually paid monthly and wages are usually paid weekly 3 false - commission is a percentage of the income they generate, which can change 4 true - money paid by a company or the government to a retired person is a pension 5 false - most people pay one or the other, depending on whether they are buying or renting...

Balancing the books

'At the end of an accounting period, for example a year, bookkeepers prepare a trial balance which transfers the debit and credit balances of different accounts onto one page. As always, the total debits should equal rhe roral credits. The accountants can then use these balances to prepare the organization's financial statements.' 4.1 Match the words in the box with the definitions below. Look at A and B opposite to help you. 1 an amount entered on the left-hand side of an account, recording...

External auditing

Public companies have ro submit their financial statements to external auditors -independent auditors who do not work for the company. The auditors have to give an opinion about whether the financial statements represent a true and fair view of the company's financial situation and results. See Unit .3 During the audit, the external auditors examine the company's systems of internal control, to see whether transactions have been recorded correcrly. They check whether the assets mentioned on the...

Internal auditing

After bookkeepers complete their accounts, and accountants prepare their financial statements-, these are checked by internal auditors. An internal audit is an examination of a company's accounts by its own internal auditors or controllers. They evaluate the accuracy or correctness of the accounts, and check for errors. They make sure that the accounts comply with, or follow, established policies, procedures, standards, laws and regulations. See Units 7 and 8 The internal auditors also check...

Doubleentry bookkeeping

Zaheer Younis works in rhc accounting department of a trading company 'I began my career as a bookkeeper. Bookkeepers record the company's daily transactions sales, purchases, debts, expenses, and so on. F.ach type of transaction is recorded in a separate account - rhe cash account, the liabilities account, and so oil. Double-entry bookkeeping is a system that records two aspects of every transaction. Every transaction is both a debit - a deduction - in one account and A corresponding credit an...

Private arid public companies

Private companies usually have 'Limited' or 'I.rd' at the end of their name. They are not allowed to sell their stocks or shares on an open market. Most companies are private there are ahour one million private companies in Britain, compared to around 2,000 public limited companies PLCs . These companies have 'pic' at the end of their name, and their shares arc publicly traded on the London Stock Exchange. A stock exchange is a market where anyone can buy stocks and shares. The US equivalent of...

Speculators

Institutional investors generally keep stocks lor a long period, but there are also speculators people who buy and sell shares rapidly, hoping to make a profit. These include day traders - people who buy stocks and sell them again before the settlement day. This is the day on which they have to pay for the stocks they have purchased, usually three business days after the trade was made. If day traders sell at a profit before settlement day, they never have ro pay for their shares. Day traders...

Dividends and capital gains

Companies that make a profit either pay a dividend to their stockholders, or retain their earnings by keeping the profits in the company, which causes the value of the stocks to rise. Stockholders can then make a capital gain - increase the amount of money they have - by selling their stocks at a higher price than they paid for them. Some stockholders prefer not to receive dividends, because the tax they pay on capital gains is lower than the income rax they pay on dividends. When an investor...

Futures

Forward and futures contracts arc agreements to sell an asset at a fixed price on a fixed dare in the future. Futures are traded on a wide range of agricultural products including wheat, maiie, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice , industrial metals aluminium, copper, lead, nickel and zinc , precious metals gold, silver, platinum and palladium and oil. These products are known as commodities. Futures were invented to enable regular buyers and sellers of commodities...

Ordinary and preference shares

If a company has only one type of share these arc ordinary shares. Some companies also have preference shares whose holders receive a fixed dividend e.g. 5 of the shares' nominal value that must be paid before holders of ordinary shares receive a dividend. Holders of preference shares have more chance of getting some of their capital back if a company goes bankrupt srops trading because it is unable to pay its debts. If the company goes into liquidation - has to sell all its assets to repay...

Direct and indirect costs

Cost accounting involves calculating the costs oi different products or services, so that company managers can know what price to charge lor particular products and services and which are the most profitable. Direct costs - those that can be directly related to the production of particular units of a product - ate quhe easy to calculate, txamples include manufacturing materials and manufacturing wages. But there are also indirect costs or overheads - costs and expenses that cannot be identified...

Other types of bonds

When interest rates are high, some companies issue convertible shares or convertibles, which are bonds that the owner can later change into shares. Convertibles pay lower interest rates than ordinary bonds, because the buyer gets the chance of making a profit with the convertible option. There are also zero coupon bonds that pay no interest bur are sold at a big discount oil their par value, which is 100 , and repaid at 100 at maturity. Because they pay no interest, their owners don't receive...

Central banks and exchange rates

What about exchange rates with foreign currencies Central banks manage a country's reserves of gold arid foreign currencies. They can try to have an influence on the exchange rate - the price at which their currency can be converted into other currencies. They do this by intervening on the currency markets, and moving the rate up or down by buying or selling their currency. See Unit 44 This changes the balance of supply - how much is being sold - and demand - how much is being bought. 23.1...

The functions of central banks

A journalist is interviewing Professor John Webb, an expert in central banking. What are the main functions of central banks Well, most countries have a central bank that provides financial services to the government and to the banking system. If a group of countries have a common currency, for example the euro, they also share a central bank, such as the European Central Bank in Frankfurt. Some central banks are responsible for monetary policy - trying to control the rate of inflation to...

Return on capital

'Venture capitalists like ourselves expect entrepreneurs - people with an idea to start a new company - to provide us with a business plan. See Unit 50 Because of the high level of risk involved, investors in start-ups usually expect a higher than average rate of return - the amount of money the investment pays - on their capital. If they can't get a quick return in cash, they can buy the new company's shares. If the company is successful and later becomes a public company, which means it is...

The profit and loss account

Companies' annual reports contain a profit and loss account. This is a financial statement which shows the difference between the revenues and expenses of a period- Nonprofit or not-for-profit organizations such as charities, public universities and museums generally produce an income and expenditure account. If they have more income than expenditure this is called a surplus rather than a profit. At the top of these statements is total sales revenue or turnover the total amount of money...

Shareholders equity

Shareholders' equity consists of all the money belonging to shareholders. Part of this is share capital - rhe money the company raised by selling its shares. Bur shareholders' equity also includes retained earnings profits from previous years rhar have not been distributed - paid out to shareholders - as dividends. Shareholders' equity is rhe same as the company's net assets, or assets minus liabilities. A balance sheet does not show how much money a company has spent or received during a year....

Commercial and retail banks

When people have more money rhan rhcy need ro spend, they may choose to save it. They deposit it in a bank account, at a commercial or retail bank, and the bank generally pays interest to the depositors. T he bank then uses the money that has been deposited to grant loans - lend money to borrowers who need more money than they have available. Banks make a profit by charging a higher rate of interest to borrowers than they pay to depositors. Commercial banks can also move or transfer money from...

Venture capital

Alex Rodriguez works for a venture capital company 'As you know, new businesses, called start-ups, arc-all private companies that aren't allowed to sell stocks or shares to the general public. They have to find other ways of raising capital. Some very small companies are able to operate on money their founders - the people who start the company - have previously saved, but larger companies need to get capital from somewhere else. As everybody knows, banks are usually risk-averse. This means...

Profitability

I here are various profitability ratios that allow investors to compare a company's profit with its sales, its assets or irs capital. Financial analysts usually include them in their reports on companies. gross profit sales - cost of goods sold This is die gross profit margin. It is the money a company has left after it pays for the cost of the goods or services it has sold. A company with a higher gross profit margin than competitors in its industry is more efficient, and should be able to...

Types of financial ratio

Financial ratios express the relationships between two or more items on financial statements. They allow investors and creditors to compare a company's present situation and performance with its past performance, and with other companies. Ratios measure m liquidity how easily a company can turn some oi its assets into cash solvency whether a company has enough cash to pay short-term debts, or whether it could go bankrupt - have its assets sold to repay creditors efficiency how well a company...

Personal finance

All the money a person receives or earns as payment is his or her income. This can include N a salary money paid monthly by an employer, or wages money paid by the day or the hour, usually received weekly gt 1 overtime money received for working extra hours commission money paid to salespeople and agents - a certain percentage of the income the employee generates H a bonus extra money given for meeting a target or for good financial results Mi fees money paid to professional people such as...