UNIT 3 1. Introducing key terms in financial planning: Complete the sentences below with a word from the box.

break0even point core activity cost of sales gross profit margin selling costs

net profit margin

overheads

profitability

setting0up costs

turnover

1. _________________________shows how a business might make profits. It is calculated from the relationship between profit and the capital invested in the company, and between profit and turnover. 2. !. $. %. &. '. (. ). he _________________________of a business is the total amount of sales, before the costs are deducted. he __________________________of a business is the main product or service which the business provides, e.g. for "I# it is cars. he __________________________is the profit the business makes before costs are considered. he __________________________ are the costs involved in creating a new business. he __________________________are the normal costs of a business, which do not change if production rises. hey are also referred to as indirect costs of fixed costs. he __________________________ is a calculation of profit after deducting the costs of sales and overheads. he __________________________ are all costs directly associated with producing the products. he __________________________is the amount of sales a company needs to cover all costs.

1*. he __________________________are all costs directly concerned with getting customers to buy products and moving them to the customer. 2. Common abbreviations +hat do the following abbreviations mean, "ill in the missing letters. 1. -# 2. ./C -alue #_ _ _ _ ___

.ublic _ _ _ _ _ _ _ C _ _ _ _ _ _ 1

!. /td $. 1 Co. %. C+2 &. c.i.f '. .#34 (. .1/ account

/______ ___ ______y C _ _ _ +_ _ _ 2rder c_ _ _, i _ _ _ _ _ _ _ _, freight .ay #_ 3 _ _ 4 _ _ _ 5i.e. tax6 . _ _ _ _ _ and / _ _ _ account

3. Cas flo! problems and ot er difficulties: Choose the correct definition for each of the terms in italics. 1. cas flo! a. money from sales and money going out to meet costs, both fixed and variable b. cash available to pay debts c. payment for fixed costs, including salaries 2. to resc edule overdraft payments a. stop paying overdraft credits to the bank b. set a new level of payments and7or change the fre8uency of payments to the bank c. ask the bank for a bigger loan !. li"uidity problem a. not paying debts b. customers who are late in making payments c. not enough cash available to pay for costs $. li"uid assets a. wealth that can easily be changed into cash b. property that cannot be easily changed into cash c. stocks and shares in drinks companies %. bad debts a. large bills to pay b. old invoices that the customer has not paid c. customers who always pay late &. go into li"uidation a. to have a lot of money, especially cash b. to go bankrupt and to stop trading c. to be taken over by another company 2

'. to record a credit deficit a. to have no profits b. to be refused credit by a supplier c. to make a loss (. debit balance a. the same as a credit deficit b. debits and credits are e8ual c. the number of debits is the same as the company forecast ). capacity problem a. workers are not able to meet production needs b. the company is already producing the maximum 8uantity possible but there is demand for more c. costs are at the maximum level the company can afford and bank will not lend any more money 1*. opportunity cost a. the costs associated with doing new business b. the costs of not doing something c. the costs of research and development #. $inancial control 9usinesses have to work out the most efficient way to produce products and services at a profit. he test introduces some key terms for this aspect of managing company finances. :atch the term on the left to the correct definition on the right. 1. profitability 2. return on investment5;2I6 !. li8uidity $. leverage %. break0even point 594.6 &. efficiency a. the amount of products or services a company needs to sell to cover all its costs b. ratio of total debts to total assets c. measure of profitability obtained from dividing net income by total amount invested d. ratio of total sales to total costs of inventory 5goods in storage6 e. ratio of cost to benefit f. measure of how well a business can meet its short term cash needs ! $ % & !

%. &anagement abbreviations +hat do the following abbreviations stand for< 1. =:4 ____________________________________________________________________ 2. 9C>____________________________________________________________________ !. :92____________________________________________________________________ $. :9+#__________________________________________________________________ %. ?:____________________________________________________________________ &. ?@4= __________________________________________________________________ '. ;2I_____________________________________________________________________ (. =9@_____________________________________________________________________ ). =+2 ___________________________________________________________________ 1*. C#A____________________________________________________________________ 11. C#:___________________________________________________________________ 12. A==____________________________________________________________________ 1!. B;_____________________________________________________________________ 1$. I ______________________________________________________________________ 1%. CI _____________________________________________________________________ 1&. :;.____________________________________________________________________ 1'. ":=____________________________________________________________________ 1(. 94.____________________________________________________________________ 1). C42____________________________________________________________________ 2*.29______________________________________________________________________ '. (usiness verbs "or each of the verbs below, three of the four words or expressions fit. In each case, circle the one that does not fit. 1. A2 2. :#E4 a. business c. a Dob a. money c. a loss b. a profit d. a deal b. business d. a decision

!. #E4 $. B#-4 %. :44 &. /#@GCB '. C@ (. C#;;3 2@ ). #CBI4-4 1*. ;4#CB

a. a long time c. appropriate measures a. progress c. shares in a company a. a deadline c. an appointment a. a product c. a campaign a. costs c. a decision a. a meeting c. research a. progress c. a Dob a. a decision c. an agreement

b. a decision d. a deadline b. something to eat d. a meeting b. customersF expectations d. a target b. a ship d. a target b. Dobs d. a price b. duties d. market survey b. a breakthrough d. little b. a strategy d. a target

). *our pay :atch each form of payment with the right person< 1. grant 2. salary !. wage $. commission %. fees &. dividend '. royalty (. stock option ). pension 1*. tax 11. redundancy pay 1 2 ! $ % & ' ( ) a. author b. senior manager c. laid0off employee d. government e. blue0collar worker f. retired employee g. sales representative h. student i. consultant D. shareholder k. white0collar worker 1* 11

+. ,rice-demand relations ip "ind words or phrases in the text which mean more or less the same as the phrases given<

T e Cro!n slips . U/ truck giant drops top seller "A #uto, the largest independent truck manufacturer in the @=#, yesterday announced plans to end production of its biggest0selling truck, the Crown %***. 2ver half a million Crown trucks have been sold in 2* years, but sales in the past five years have declined to ),*** last year. hree years ago the company cut prices by 2*H to try to stimulate demands but sales rose by less than %H. he price cut ate up the entire margin. 4ven in the normally price0sensitive @= truck market, the Crown could not recover. IItFs a sad day, but we have to face reality. he Crown has passed its sell0by0date,F said /aurie =eller, the :arketing :anager for "A #uto. Be accepted that the price cut had failed saying that the company had miscalculated. I Aemand for the Crown is not totally inelastic< price does not affect demand. ItFs a dead truck. +e cannot make any profit.F It is not all bad news for "A #uto, however. #nnual sales showed a small increase and turnover is expected to rise in the components division.

1. consumers wanting to buy the product 2. difference between cost price and selling price !. easily influenced by price changes $. is old0fashioned %. reduction in price &. not affected by price changes '. sales in a year (. total sales

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0. ,lacing an order: covering letter

F. Lynch & Co. Ltd

1ead 2ffice Gesson Bouse Gewell =treet 9irmingham 9!!4/ elephone< J $$5*621 2!&&%'1 "ax< J $$5*621 2!&&%'1 4mail< pcraneKlynch.co.uk www.lynch.com 3our ref< A71$!) 2ur ref< 2rder A;$!1&

=atex =.p.# -ia di .ietra .apa **1$& ;oma I #/3 ) :arch 2**& 3ttn. /ig. 4. Causio Aear =ig. Causio .lease find enclosed our official order, Go.A;$!1&. "or this order, we accept the 1%H trade discount you offered, and the terms of payment 5sight draft, C#A6 but hope you are willing to review these terms if we decide to order again. +ould you please send the shipping documents and your sight draft to Gorthminster 9ank 5City 9ranch6, Aeal =treet, 9irmingham 9! 1=?. If you do not have any of the items we have ordered currently in stock, please do not send alternatives. +e would appreciate delivery within the next six weeks, and look forward to your acknowledgement. 3ours sincerely Peter Crane .eter Crane Chief 9uyer 4nc. 2rder Go.A;$!1& '