Company Finances
and Corporate Governance
Corporate Governance
= The way companies are run and the
accountability of the managers to their owners.
Auditing: faulty?
Overstating profits? Overstatements?
Accounting irregularities? dishonesty
Financial irregularities
Financial risks - scandals
A finance director needs to be…
Careful?
Courageous?
Creative?
Enthusiastic?
Good at communicating?
Imaginative?
Impatient with details?
meticulous?
Company finances: Vocab
See exercise in dispensa (matching definitions)
• A creditor
• Revenue
• Overheads
• To go bankrupt
• To break even
• Debtor
• Net profit
• To overspend
• Gross profit
• Operating profit
• expenditure
KEY - Company finances: Vocab
See exercise in dispensa to find definitions with numbers
• A creditor (2)
• Revenue (4)
• Overheads (11)
• To go bankrupt (3)
• To break even (5)
• Debtor (1)
• Net profit (8)
• To overspend (9)
• Gross profit (6)
• Operating profit (10)
• Expenditure (7)
Similar meanings
• To cover costs
=
• To go into liquidation
• Turnover
=
To break even
= To go bankrupt
Revenue
• To chase payments
• To pay off a debt
• To write off a debt
1) If a company pays the money that it owes to
someone, then it……………….
2) If a company tries to make a person or
organisation pay it the money that they owe
(e.g by sending out letters t remind them), then
it……………….
3) If a company decides to stop trying to get the
money that a person or organisation owes it
(because, for example, the company no longer
exists) then it……………….
• To chase payments
• To pay off a debt
• To write off a debt
1) If a company pays the money that it owes to
someone, then it pays off a debt.
2) If a company tries to make a person or
organisation pay it the money that they owe
(e.g by sending out letters to remind them),
then it chases payment.
3) If a company decides to stop trying to get the
money that a person or organisation owes it
(because, for example, the company no longer
exists) then it writes off a debt.
More vocab and definitions
• An amount of money that is
owed
1. Cashflow
2. Deficit
3. Return on sales
4. Acquisition
5. Takeover
6. subsidiary
• The buying of a company by
another company
• Payments coming into and
going out of a business (like a
river!)
• A company which is owned, or
more than 50% owned by
another company
• The percentage that is earned
by selling the product
• The buying on one company by
another company
More vocab and definitions
• An amount of money that is owed: = deficit
• The buying of a company by another company =
acquisition or takeover (takeover is more hostile)
• Payments coming into and going out of a business
(like a river!) = cashflow
• A company which is owned, or more than 50%
owned by another company = subsidiary
• The percentage that is earned by selling the
product = return on sales
Vocab note:
“Profit” is the difference between what you sell something
for and what you paid for it.
“Margin” simply means you turn profit into a percentage
of the selling price. You do this so you can compare
different items easily.
markup is your profit as a percentage of the cost price
profit margin is your profit as a percentage of your selling
price.
Retained profit
Retained profit in accounting, refers to the portion of net
income which is retained by the corporation rather than
distributed to its owners as dividends. It also refers to the
remaining profit retained by the company after all
deductions have been made, including tax, interest,
minority interests and dividends.
Operating Profit
The profit earned from a firm's core business
operations. It does not include profit earned from
the firm's investments (such as earnings from
firms in which the company has a partial interest)
and the effects of interest and taxes. Also known
as earnings before interest and taxes (EBIT).
Key notes (before reading activity)
Financial performance/status of companies
Huge losses experienced by investors and
employees due to mismanagement and
irregularities in financial reporting have led to
a demand for stricter corporate governance.
Independent auditors such as the SEC in the
US have been checking balance sheets, which
show the overall performance of companies and
income statements (AmE) or profit and loss
accounts (BrE) which show the difference
between total income and outgoings for a given
period.
Financial Scandals
• Enron (USA) Energy firm (irregularities in
accounting)
• Royal Ahold (Netherlands) A world food
retailer (overstated its profits)
• WorldCom (USA) Telecom company
(massive fraud in WorldCom accounts – big
investigations by antitrust regulators
• Parmalat (Italy) Food and Milk products
(falsified accounts to conceal losses)
The financial performance of companies is
monitored via two key financial statements:
1 - The Profit and Loss Account (P&L) - (BrE)
= Income Sheets - (AmE)
The difference between total income (eg, sales,
profits) and outgoings (eg.costs, expenses)
during a particular period
2 - The Balance Sheet (BrE)
= state of financial position (AmE)
A statement (a snapshot) showing the wealth of a
company. It shows the assets (values or power
to make money) and the liabilities (money
owed to suppliers) during a particular period.
Articles: “Europe’s ENRON” and
“Death of Economics”
In USA: Enron or WorldCom companies
expressed the need to grow at all costs in the
new globalised economy: “merger-mania” has
led companies to become “creative” in their
accounting methods.
“creative” = hiding debts to finance acquisitions is
becoming common practice.
In Europe: AHOLD company (in the Netherlands,
europe’s biggest food retailer) – accused of
accounting irregularities
More Vocab in article
Exceed = to go over
Plunged = go down/decrease very quickly
To turn a dull company into a growth machine = (Dull has
the opposite meaning – similar to not much)
Is due to = because of
This has led to = to lead to = has the following
consequence
A rebate = a reduction
A dept = money owed
To be in debt
To fix a problem = to resolve a problem
A former company = previous company
To be under investigation = when law evasion is
suspected (the SEC investigate)
Issues = problems
“To buy in bulk” = to buy in large quatities
Acquisitions = similar to takeover
Earnings = money in = inflow of money
«Agressive earnings» = invented earnings (irregular, an
exageration in statement, overstatements.
«To book rebates» to claim reductions/discounts (rebates)
in advance, before payments are made (impossible!)
To overstate sales/earnings: say more than
real/actual amount
To conceal the truth= to hide the truth = similar to
a lie
Fraud is an issue that auditors try to deal with or
tackle
P.16 -vocabulary key to gap fill
1) a
2) d
3) c
4) a
5) d
6) a
7) d
8) c
9) a
P.17 – Word grammar 2 (key)
1 -Financially
2- Financer
3_investor
4 – investment
5 – capitalise
6 – capitalism
7 – negotiateg
8 - negotiable
Expressions with money
1 -waste
2 – bad
3 – ties
4 – tight
5 – liquid
6 – throw
7 – chenneling
8 - made
1.ok
Word partnerships 2 p.17
2.to regulate B2B relations
3. to put pressure on debtors
4. to minimise ther risk of bad debt
5. to damage customer relations
6. to insist on money in advance
7. to ease the cashflow situation
8. to process letters of credit
9.to run a credit check
10. to charge interest on outstanding debts
11.to risk alienating customers
12. to finance new projects