PART 3: Corporate finance

Unit 1: Fundermantals of Corporate finance

Instructor: Nguyễn Tuấn Anh

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 TERMINOLOGY

Breach of contract - Vi phạm hợp đồng: is a legal cause of action in which a 

binding agreement or bargained-for exchange is not honored by one or more of the parties
to the contract by non-performance or interference with the other party's performance. In the
context, breach of contractmeans the borrower is in default of loan.
• A breach of contract occurs when one party in a binding agreement fails to deliver
according to the terms of the agreement.
• A breach of contract can happen in both a written and an oral contract.
• The parties involved in a breach of contract may resolve the issue among themselves, or
in a court of law.
• There are different types of contract breaches, including a minor or material breach and
an actual or anticipatory breach.

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 TERMINOLOGY

Collateral - Tài sản đảm bảo: is a borrower's pledge of specific property to a lender, to 

secure repayment of a loan. The collateral serves as protection for a lender against a
borrower's default - that is, any borrower failing to pay the principal and interest under the
terms of a loan obligation.
• Collateral is an item of value used to secure a loan.
• Collateral minimizes the risk for lenders.
• If a borrower defaults on the loan, the lender can seize the collateral and sell it to recoup
its losses.
• Mortgages and car loans are two types of collateralized loans.
• Other personal assets, such as a savings or investment account, can be used to secure a
collateralized personal loan.

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 TERMINOLOGY

• Common stock - Cổ phiếu thường/cổ phiếu phổ thông: equity without

priority for dividends or in bankruptcy.

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 TERMINOLOGY

• Economic downturns - Suy thoái kinh tế: It is a general slowdown in

economic activity. Macroeconomicindicators such as GDP (gross domestic
product), investment spending, capacity utilization, household income,
business profits, and inflation fall, while bankruptcies and the 
unemployment rate rise.

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 TERMINOLOGY

• Finance - Tài trợ: deal with the sources of funding to expand business.

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 TERMINOLOGY

• Go public - Chào bán cho công chúng đầu tư: before securities can trade on
a securities market (stock exchange), they must be issued to the public. A
public issue of debt or equity can be sold directly to the public with the help of
underwriters.

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 TERMINOLOGY

• Insolvency proceedings - Phá sản: is a legal status of a person or other entity

 that cannot repay the debts it owes to creditors. Bankruptcy is not the only
legal status that an insolvent person or other entity may have, and the
term bankruptcy is therefore not a synonym for insolvency. In some countries,
including the United Kingdom, bankruptcy is limited to individuals, and other
forms of insolvency proceedings (such as liquidation and administration) are
applied to companies. In the United States, bankruptcy is applied more
broadly to formal insolvency proceedings.

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 TERMINOLOGY

• Money judgment - Phán quyết phạt tiền: amount of money that a lender
receives due to a borrower breach the contract.

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 TERMINOLOGY

• Payout ratio - Tỷ lệ trả cổ tức: amount of cash paid out to shareholders

divided by net income.

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 TERMINOLOGY

• Pay off - Thanh toán hết: all debts are paid out by a company.

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 TERMINOLOGY

• Preferred stock - Cổ phiếu ưu đãi: stock with dividend priority over

common stock, normally with a fixed dividend rate, often without voting
rights.

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 TERMINOLOGY

• Retained earnings - Lợi nhuận giữ lại/Lợi nhuận chưa phân phối/Lợi
nhuận không chia: corporate earnings not paid out as dividend.

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 TERMINOLOGY

• Residual value - Giá trị còn lại: the remaining value of assets after they have
been fully paid off debts when a firm sells its assets.

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 TERMINOLOGY

• Share split - Chia tách cổ phiếu: an increase in a firm’s shares outstanding

without any change in owner’s equity. When a split is declared, each share is
split up to create additional shares. For example, in a three-for-one stock split,
each old share is split into three new shares.

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 TERMINOLOGY

• Tax-deduction - Khấu trừ thuế: is a reduction of the income subject to tax,

for various items, especially expenses incurred to produce income.

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 READING
How do corporations raise capital? (1)

Large corporations could not have grown to their present size

without being able to find innovative ways to raise capital to finance
 expansion. Corporations have five primary methods for obtaining that
money.

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 READING
How do corporations raise capital? (2)

Issuing bonds. A bond is a written promise to pay back a specific amount

of money at a certain date(s) in the future. In the interim, bondholders receive
interest payments at fixed rates on specified dates. Holders can sell bonds to
someone else before they are due.
Corporations benefit by issuing bonds because the interest rates they
must pay investors are generally lower than rates for most other types of
borrowing and because interest paid on bonds is considered to be a tax-
deductible business expense. However, corporations must make interest
payments even when they are not showing profits. If investors doubt a
company's ability to meet its interest obligations, they either will refuse to
buy its bonds or will demand a higher rate of interest to compensate them for
their increased risk. For this reason, smaller corporations can seldom raise
much capital by issuing bonds.

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 READING
How do corporations raise capital? (3)

Issuing preferred stock. A company may choose to issue new

"preferred" stock to raise capital. Buyers of these shares have special
status in the event the underlying company encounters financial trouble.
If profits are limited, preferred-stock owners will be paid their dividends
after bondholders receive their guaranteed interest payments but before
any common stock dividends are paid.
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 READING
How do corporations raise capital? (4)
Selling common stock. If a company is in good financial health, it can raise
capital by issuing common stock. Typically, investment banks help companies issue
stock, agreeing to buy any new shares issued at a set price if the public refuses to buy
the stock at a certain minimum price. Although common shareholders have the
exclusive right to elect a corporation’s board of directors, they rank behind holders of
bonds and preferred stock when it comes to sharing profits.

Investors are attracted to stocks in two ways. Some companies pay large
dividends, offering investors a steady income. But others pay little or no dividends,
hoping instead to attract shareholders by improving corporate profitability, and hence,
the value of the shares themselves. In general, the value of shares increases as investors
come to expect corporate earnings to rise. Companies whose stock prices rise
substantially often "split" the shares, paying each holder, say, one additional share for
each share held. This does not raise any capital for the corporation, but it makes it
easier for stockholders
Nguyen Tuan Anh NEU to sell shares on the open market. In a two-for-one split, for

instance, the stock's price is initially cut in half, attracting investors

 READING
How do corporations raise capital? (4)
Borrowing from financial institutions. Companies can also raise
short-term capital, usually to finance inventories, by getting loans from
financial institutions as banks or other lenders. A bank loan can be
secured or unsecured. The former is a loan in which the borrower pledges
some asset (e.g. a equipment or property) as collateral. If the borrower
defaults on the loan, the bank would have the legal right to repossess the
collateral and sell it, to recover sums owing to it.
Interest rates on unsecured loans are nearly always higher than for
secured loans, because an unsecured lender's options for recourse against the
borrower in the event of default are severely limited. An unsecured lender
must sue the borrower, obtain a money judgment for breach of contract, and
then pursue execution of the judgment against the borrower's unencumbered
assets (that is, the ones not already pledged to secured lenders). In insolvency
proceedings, secured lenders traditionally have priority over unsecured
lenders when a court divides up the borrower's assets. Thus, a higher interest
rate reflects the additional risk that in the event of insolvency, the debt may
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be uncollectible.
 READING
How do corporations raise capital?

Using profits. As noted, companies also can finance their operations

by retaining their earnings. Strategies concerning retained earnings vary. Some
corporations, especially electric, gas, and other utilities, pay out most of their
profits as dividends to their stockholders. Others distribute, say, 50 percent of
earnings to shareholders in dividends, keeping the rest to pay for operations and
expansion. Still other corporations, often the smaller ones, prefer to reinvest
most or all of their net income in research and expansion, hoping to reward
investors by rapidly increasing the value of their shares.

(Source: http://economics.about.com/od/smallbigbusiness/a/corp_capital.htm)
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 Question

1. What are bond, preferred stock and common stock?

2. When do the preferred stockholders receive dividend?

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 Question

3. How do companies borrowing from financial

institutions?

4. What are retained earnings?

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 Question

5. Which financing sources are liabilities of companies?

6. What are the differences between preferred stock and

common stock?

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 Question

7. What are the rights of a common stockholder?

8. Is there a payout ratio pursued by all companies?

9. What is the rationality of retaining earnings rather

than paying out as dividend?

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 Matching
1. audited a. reduction in value of an asset over time
2. fixed asset b. money paid to shareholders
3. depreciation c. asset purchased for long-term use, such as land,
buildings and equipment
4. net d. after any deductions
5. shareholder e. accounts checked by an independent examiner
6. dividend f. an expense that has been incurred but has not yet
been paid
7. current liabilities g. money which must be paid out within one year
8. share capital h. money which must be paid out after one year
9. long-term liabilities i. money raised by issuing shares in the company
10. accrued expense j. a person who has invested in the company
  through buying shares

1-e
Answer:
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 Read the text below and find the right word or phrase from the box to fill
each of the gaps.
arm outstanding trading pounds' worth
cash flow subsidiary went public sale or return
liabilities tied up founded in its own right

Parker Publishing was (1)founded_________________ in 1872 by Hieronymous Parker,

originally as the publisher of a religious periodical called The Preacher. It now specializes in lifestyle
magazines, and, through its (2)subsidiary_________________ Tekpress, also publishes several highly
successful periodicals on consumer interest subjects such as computing and hi-fi. The distribution
(3)arm________________ also distributes magazines from other publishers, and has become highly
profitable (4)in its own right_________________.
The company (5)went public_________________ in 1987. The shares, originally priced at 50p,
are (6)trading_________________ at the time of writing for around £3.20.

Like many magazine publishers, Parker is vulnerable to (7)cash flow_________________

problems. As their magazines are on (8)sale or return_________________, they usually have millions
of pounds (9)outstanding_________________ from retailers, and have
(10)liabilities_________________ of several millions more in printers' bills. In addition they have to
keep large sums of money (11)tied up_________________ in stock - the firm's warehouses in London
and Manchester usually contain around five million (12)pounds' worth_________________ of
magazines.
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 Choose the best words to fill the spaces

1. The fiscal year to March 31st can also be called the year ____(b)______
March 31st.

a. finishing b. ending c. terminating

2. Another term for "main business" is ___(c)_______ business.

a. central b. first c. core

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 Choose the best words to fill the spaces

3. A company which makes a profit can be described as profitable or

___(b)_______.

a. profit-getting b. profit-making c. profit-having

4. A company which makes a loss can be described as ____(b)______.

a. loss-getting b. loss-making c. loss-having

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 Choose the best words to fill the spaces

5. "Profit before tax" can also be called ___(a)_______.

a. pre-tax profit b. without-tax profit c. non-tax profit

6. Another word for shareholders (especially in American English) is

___(b)_______.

a. ticket-holders b. stockholders c. paper-holder

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 Choose the best words to fill the spaces

7. Another word for "operating costs" is ___(a)_______.

a. overheads b. headings c. heads

8. A company which makes neither a profit nor a loss is said to ___(c)_______.

a. fall even b. drop even c. break even

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 Put the words into the spaces.
annual report capital intensive cost-benefit analysis
into partnership joint venture lease
monopoly profit margin recoup
start-up costs supply and demand working capital

1. Before deciding to invest in a new computer system, we need to do a (1)

cost-benefit analysis________to see if it's going to be worth it.

2. The new machinery cost a lot, but we'll (2) recoup________the

investment in just a few months.

3. You can read about the company's finances, performance and plans for
the future in its (3) annual report________

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 Put the words into the spaces.
annual report capital intensive cost-benefit analysis
into partnership joint venture lease
monopoly profit margin recoup
start-up costs supply and demand working capital

4. We don't actually own our delivery lorries. We (4)

lease__________them.

5. We'd like to launch a new airline, but the (5) start-up

costs_______are very high.

6. Airlines are a very (6) capital-intensive__________form of

business, as aeroplanes are extremely expensive.

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 Put the words into the spaces.
annual report capital intensive cost-benefit analysis
into partnership joint venture lease
monopoly profit margin recoup
start-up costs supply and demand working capital

7. Jewellery retailers need a lot of (7) working capital____________, as the

cost of their stock is high.

8. Petrol filling stations operate on a very narrow (8) profit

margin_________. They only make about 1p a litre.

9. All business is subject to the laws of (9) supply and

demand______________.

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 Put the words into the spaces.
annual report capital intensive cost-benefit analysis
into partnership joint venture lease
monopoly profit margin recoup
start-up costs supply and demand working capital

10. The new mobile phone banking service is a (10) joint venture
_________between ÜberBank and Telkom.

11. ÜberBank and Telkom have gone (11) into partnership__________

with each other.

12. In Italy, Telecom Italia used to have a (12) monopoly_________on

telecommunications.

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Money TV was the financial news Cable TV station. Put the story in order.

a. After a shaky start, Money TV went into profit after three years.
b. They raised some capital from a merchant bank.
c. As a result, Money TV’s advertising revenue fell dramatically.
d. Three companies, JYP Entertainment, YG media and SM Communications
formed a consortium.
e. Money TV started to make heavy losses.
f. A new station, The Money Channel was launched by CUBE Media Group, the US
media empire.
g. Money TV went into liquidation.
h. They bought equipment, rented premises, hired staff and set up Money TV.
i. Viewing figures dropped sharply because of competition from The Money
Channel.
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 TRANSLATION
A part of the balance sheet (1)

Liabilities and owners’ equity: The firm’s liabilities are classified as

either current or long-term. Current liabilities, like current assets, have a life
of less than one year (meaning they must be paid within the year) and are
listed before long-term liabilities. Accounts payable (money the firm owes to
its suppliers) is one example of a current liability.

A debt that is not due in the coming year is classified as a long-term

liability. A loan that the firm will pay off in five years is one such long-term
debt. Firm borrows long-term debts from a variety of sources. We will tend to
use the terms bond and bondholders generically to refer to long-term debts
and long-term creditors, respectively.
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 TRANSLATION

A part of the balance sheet (2)

Finally, by definition, the difference between the total value of

assets (current and fixed) and the total value of liabilities (current and long-
term) is the shareholders’ equity, also called common equity or owners’
equity. This feature of the balance sheet is intended to reflect the fact that, if
the firm was to sell all of its assets and use the money to pay off its debts,
then whatever residual value remains belongs to the shareholders.

(Source: Ross, S. et al (2002), Fundamentals of corporate finance,

McGraw – Hill, New York)

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 TRANSLATION

Một phần của bảng cân đối kế toán

Nợ và vốn chủ sở hữu: nợ của công ty bao gồm nợ ngắn hạn và nợ dài hạn. Nợ
ngắn hạn, giống như tài sản ngắn hạn, có thời gian sử dụng dưới 1 năm (có nghĩa là
công ty phải trả khoản nợ đó trong vòng 1 năm) và được xếp trước nợ dài hạn trong
bảng CĐKT. Khoản phải trả (số tiền nợ nhà cung cấp) là 1 ví dụ về nợ ngắn hạn.

Một khoản nợ chưa phải trả trong năm tới được xem là khoản nợ dài hạn. Một
khoản nợ mà công ty phải trả trong vòng 5 năm là nợ dài hạn. Công ty vay nợ dài hạn
từ các nguồn khác nhau. Nhìn chung, thuật ngữ trái phiếu và trái chủ có xu hướng
được sử dụng để đề cập tới khoản nợ dài hạn và chủ nợ.

Cuối cùng, phần chênh lệch giữa tổng tài sản (TSNH và TSDH) và tổng nợ (nợ
ngắn hạn và nợ dài hạn) là vốn chủ sở hữu, còn được gọi là vốn chủ sở hữu. Đặc trưng
này của bảng CĐKT nhằm phản ánh thực tế là nếu công ty bán toàn bộ tài sản của
mình để lấy tiền trả hết các khoản nợ, phần còn lại sẽ thuộc về cổ đông
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 TRANSLATION
Financial problems in business (1)

Businesses have lives of their own. Making your business work

requires thinking through the challenges you might face. Keep in mind that
financial problems don't make your business a failure - businesses experience
growing pains and turning points.

Cash flow

Very few businesses escape cash flow problems. If you are in a

business where you bill for services performed or goods sold - as so many
businesses do - your revenues can look good on paper while you bank
account looks terrible. No one likes doing it, but keeping track of your
receivables and getting clients to pay can be necessary to your business'
health and growth.
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 TRANSLATION
Financial problems in business (2)
Funding

When you're getting started and at pivotal growth points in your business, you
can easily find yourself needing more money than you have. That's when you have tough
decisions to make about getting financing. You can choose debt financing such as loans
and lines of credit, or attract investors and sell equity in your business in exchange for
the capital you need to move forward.

Economic cycles

You can have great management, the right product or service and the best sales
and service methods, and still struggle because of outside forces. Sometimes, the
economy or your industry goes through a crisis. Because of consumer choices and
habits, demand for your product can suddenly fall off without warning. One of the
challenges businesses face is to plan for the inevitable periodic downturns so they can
sustain themselves through economic bad weather.
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(Source:http://smallbusiness.chron.com/financial-problems-business-4073.html)
 Các vấn đề tài chính trong kinh doanh (1)
Kinh doanh cũng có tuổi thọ. Khi tiến hành công việc kinh doanh bạn
phải nghĩ tới những thách thức sẽ phải đương đầu. Nên nhớ rằng những vấn
đề tài chính sẽ không làm cho việc kinh doanh của bạn thất bại – công việc
kinh doanh sẽ trải nghiệm những khó khăn mới và có những hướng đi mới.

Dòng tiền

Có rất ít công việc kinh doanh mà không gặp phải vấn đề dòng tiền.
Nếu bạn kinh doanh và được thanh toán tiền do cung cấp hàng hóa và dịch
vụ - công việc kinh doanh thường như vậy – doanh thu của bạn có vẻ tốt trên
sổ sách trong khi tài khoản thanh toán của bạn lại cho thấy khả năng chi trả
rất kém. Không ai muốn điều đó xảy ra, nhưng việc theo dõi khoản phải thu
và việc thu tiền của khách hàng là cần thiết đối với sức khỏe và tăng trưởng
của công ty.
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 Các vấn đề tài chính trong kinh doanh (2)
Tài trợ

Khi bạn đang bước vào thời điểm bắt đầu và tăng trưởng then chốt của
công việc kinh doanh, bạn dễ dàng tìm kiếm được nguồn vốn hơn bạn bạn có. Điều
đó có nghĩa là khi bạn có những quyết định cứng rắn để tìm nguồn tài trợ. Bạn có
thể tài trợ bằng nợ chẳng hạn như đi vay, hạn mức tín dụng, hay thu hút nhà đầu
tư và bán cổ phiếu trên sở giao dịch để đáp ứng nhu cầu vốn cho hoạt động kinh
doanh cho thời gian tới.

Chu kỳ kinh tế

Bạn có thể có bộ máy quản lý tuyệt vời, sản phẩm hay dịch vụ phù hợp và
phương thức bán hàng và dịch vụ tốt nhất, và vẫn cạnh tranh bởi những lực lượng
bên ngoài. Nền kinh tế hay ngành của bạn đôi khi trải qua thời kỳ khủng hoảng. Do
sự lựa chọn và thói quen của khách hàng, cầu về sản phẩm của bạn bỗng nhiên sụt
giảm mà không có sự cảnh báo trước. Một trong những thách thức mà hoạt động
kinh doanh phải đối mặt là dự tính suy thoái có tính định kỳ không thể tránh khỏi vì
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vậy bản thân bạn có thể phải chống đỡ qua giai đoạn xấu của nền kinh tế.
 TRANSLATION

A part of the balance sheet

Liabilities and owners’ equity: The firm’s liabilities are classified as

either current or long-term. Current liabilities, like current assets, have a life
of less than one year (meaning they must be paid within the year) and are
listed before long-term liabilities. Accounts payable (money the firm owes to
its suppliers) is one example of a current liability.

A debt that is not due in the coming year is classified as a long-term

liability. A loan that the firm will pay off in five years is one such long-term
debt. Firm borrows long-term debts from a variety of sources. We will tend to
use the terms bond and bondholders generically to refer to long-term debts
and long-term creditors, respectively.
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 The end
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