The uses of funds

7.2.A

Discussion

Meeting the company's needs

In small groups, discuss what you think would be the likely source or sources of funds in the following cases. Make a copy of the grid and fill it in accordingly. Be ready to justify your decisions.

Company

Needs

Source(s) of funds

1 Computer manufacturer (annual earnings 1992: $3 billion)

to buy new plant and equipment

2 Medium-sized car dealer

to buy 12 vehicles for immediate display in showroom (prime lending rate: 13%)

3 Small producer of kitchen furniture

to have enough ready cash to cover immediate expenses

4 Small manufacturer

to purchase 10 industrial drills

5 Large producer of skiing equipment with top credit-rating

to meet immediate expenses during off-season (prime lending rate: 18%)

6 Overseas electronics wholesaler with unknown credit rating

to buy a large consignment of VCRs

7 Clothes store with poor credit rating

to purchase stock for the summer season

8 Major oil company

to build a 1,000 km pipeline from a newly discovered oil-field to the sea

9 Loading chemical manufacturer

(forecast: two or three years before business takes off again)

7.2.B

Summarising I

Getting the message across

In writing reports and memos, and in presenting information orally, we are often called upon to state or restate the main facts and arguments as briefly as possible.

Match each of the following long sentences with a short sentence.

Long sentences

1. It is probably quite true to say that to a certain extent the borrower's choice of options in financing a project depends in many cases on the probable cost of the project.

2. Raising funds through the sale of certificates of indebtedness is less onerous, financially speaking, than other ways of raising capital.

3. Individuals and institutions owning bonds in a particular company are not allowed to interfere in the way it runs its business.

4. There are many arguments for and against the decision by a company to obtain fresh capital through the sale of shares on the Stock Exchange.

5. Raising capital through borrowing from banks, individuals, companies or any other institution can turn out to be a costly operation at times when rates of interest tend to be high.

Short sentences

1. The Stock Exchange cannot meet the needs of all companies.

2. When interest rates are high, any form of debt is expensive.

3. It is relatively easy to issue bonds.

4. Bondholders do not have any voice in management.

5. Bonds represent the cheapest type of financing.

6. Choosing a vehicle for financing a project often depends on the size of the operation.

7. Issuing stock has its pros and cons.

8. The choice of project a company undertakes depends on the capital it is able to raise.

9. Buying shares can be expensive.

Why are the short sentences better models to follow than the long sentences?

7.2.C

Summarising 2

Simplifying and reducing

A good summary should:

• be objective - your comments or opinions should not be included

• be in your own words

• include only essential material

• be concise - it should be no longer than one-third of the original work and may be as short as one sentence.

Rewrite each of the following sentences, preserving the essential meaning, in a maximum of one-third of the original number of words.

1 It is undeniably the case that the growing number of consumers who purchase goods and services using any one of a number of credit cards has led to a situation where banks are reaping huge profits. (36 words)

2 It is most regrettable that there is clear evidence which indicates that certain consumers in our society are purchasing more than they can afford due to credit cards. (28 words)

3 It would appear reasonable to assert that more stringent measures need to be set up and put into practice by the banks themselves if we are not to witness the tragedy of growing numbers of families being forced into a situation of living in a state of permanent indebtedness. (49 words)

4 It really was totally and utterly irresponsible of loan managers from banks throughout the United States as well as Western Europe and Japan to have acted in such a way as to extend large-scale credit facilities to undeveloped and developing countries whose economies simply have not been able to support the enormous burden of interest repayments. (57 words)

7.2.D

Vocabulary

Verbs and nouns in context

I Match the phrases on the left with those on the right to make complete sentences.

1. We should be able to meet...

2. We'll need to raise...

3. If we don't use our reserves, we'll simply have to take on...

4. If you buy on hire purchase, you have to put down ...

5. It may be more expensive to pay by...

6. We'll ask our supplier to draw up ...

7. It will work out very expensive to factor...

8. Let's lease...

9. I hope they don't default...

10. Instead of giving a dividend this year, why don't we plough back...

1. on the loan.

2. our accounts receivable.

3. all the profits.

4. our expenses this year.

5. a deposit.

6. funds for the expansion programme.

7. a trade draft.

8. instalments.

9. all the vehicles.

10. more debt.

2 Find the nouns which correspond to the following verbs.

Example

To indicate → indication

1. to repay

2. to extend

3. to purchase

4. to reap

5. to acquire

6. to discuss

7. to avoid

8. to vary

9. to agree

10. to promise

11. to back

12. to fail

13. to seize

14. to require

15. to negotiate

16. to sell

17. to distribute

18. to divide

19. to lease

20. to own

21. to expect

22. to specify

23. to earn

24. to rate

3 Fill in the blanks in the following paragraph, using nouns from the previous exercise, so that it respects the meaning of the paragraph which follows.

'The 1 of the government to provide sufficient

2 for the project has led to a

3 among the members of the Board of Directors. Some want to reopen 4* with the government in the hope of obtaining more cash, while others feel we should ask the banks for a(n) 5 of the

6 of the loan. My main worry is that if neither

plan works, we'll have to consider the 7 of

our American operations which will lead to a major loss of

8 . Hopefully, though, we'll come to some kind

of a(n) 9 before long.

*two possibilities

'The government has not funded the project sufficiently and the Board is now split over whether to try again or ask the banks to restructure the debt. I'm concerned that if we don't come up with a solution, we may have to discontinue our business in the States, with the resulting drop in income. Let's hope we can sort something out soon!'

7.2.E

Discussion

Sayings

Each language has 'sayings' about money. Discuss the ideas behind the English sayings shown below. Translate similar sayings about money from other languages you know and compare the advice they offer.