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.
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
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
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?
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
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.