UNIT 3

1. Introducing key terms in financial planning:

Complete the sentences below with a word from the box.

1. Profitability 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. The net profit margin of a business is the total amount of sales, before the costs are
deducted.
3. The core activity of a business is the main product or service which the business
provides, e.g. for FIAT it is cars.
4. The setting-up costs is the profit the business makes before costs are considered.
5. The gross-profit margin are the costs involved in creating a new business.
6. The overheads are the normal costs of a business, which do not change if production
rises. They are also referred to as indirect costs of fixed costs.
7. The break-even point is a calculation of profit after deducting the costs of sales and
overheads.
8. The cost of sales are all costs directly associated with producing the products.
9. The turmover is the amount of sales a company needs to cover all costs.
10. The selling costs are all costs directly concerned with getting customers to buy products
and moving them to the customer.
2. Common abbreviations
What do the following abbreviations mean? Fill in the missing letters.
1. VAT
2. PLC
3. Ltd

VALUE ADDED TAX

PUBLIC LIMITED COMPANY
LIMITED

4. & Co.

AND COMPANY

5. CWO

CASH WITH ORDER

6. c.i.f

COST, INSURANCE and FREIGHT

7. PAYE

PAY AS YOU EARN (i.e. tax)

8. P&L account

PROFIT AND LOSS ACCOUNT

3. Cashflow problems and other difficulties:

Choose the correct definition for each of the terms in italics.
1. cashflow

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 reschedule overdraft payments

a. stop paying overdraft credits to the bank

b. set a new level of payments and/or change the frequency of payments to the bank
c. ask the bank for a bigger loan
3. liquidity problem
a. not paying debts
b. customers who are late in making payments

c. not enough cash available to pay for costs

4. liquid assets ( active lichide)

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
5. bad debts
a. large bills to pay
b. old invoices that the customer has not paid

c. customers who always pay late

6. go into liquidation
a. to have a lot of money, especially cash

b. to go bankrupt and to stop trading

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c. to be taken over by another company

7. to record a credit deficit
a. to have no profits
b. to be refused credit by a supplier
c. to make a loss
8. debit balance
a. the same as a credit deficit

b. debits and credits are equal

c. the number of debits is the same as the company forecast
9. capacity problem
a. workers are not able to meet production needs

b. the company is already producing the maximum quantity 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
10. opportunity cost
a. the costs associated with doing new business
b. the costs of not doing something

c. the costs of research and development

4. Financial control
Businesses have to work out the most efficient way to produce products and services at a
profit. The test introduces some key terms for this aspect of managing company finances.
Match the term on the left to the correct definition on the right.
1. profitability

a. the amount of products or services a company needs to

sell to cover all its costs

2. return on investment(ROI)

b. ratio of total debts to total assets

3. liquidity

c. measure of profitability obtained from dividing net

income by total amount invested

4. leverage (..parghie)

d. ratio of total sales to total costs of inventory (goods in

storage)

5. break-even point (BEP)

6. efficiency

1e

2c

e. ratio of cost to benefit

f. measure of how well a business can meet its short term
cash needs

3f

4d

5b

6a
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5. Management abbreviations
What do the following abbreviations stand for:
1. SME _small and medium enterprises____________________
2.BCG _________________________________________________________________
3. MBO__management by objectives_____________
4.MBWA management by ordering around
5.TQM_total__quality__management
6. QUEST__________________________________________________________________
7.ROI_return_on_investment
8.SBU__strategic_business_unit
9. SWOT_strenghts_weakneses_opportunities_threads
10. CAD____________________________________________________________________

11. CAM Computer-aided manufacturing

12. DSS____________________________________________________________________
13. HR___human_resources
14.IT___information tehnology
15.JIT___just_in_time
16.MRP_material_requirment_planning
17. FMS____________________________________________________________________
18. BEP____________________________________________________________________
19.CEO_chief_executive_officer
20.OB______________________________________________________________________
6. Business verbs
For each of the verbs below, three of the four words or expressions fit. In each case, circle the
one that does not fit.
1. DO
2. MAKE

a. business

b. a profit

c. a job

d. a deal

a. money

b. business
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c. a loss

3. TAKE
4. HAVE
5. MEET
6. LAUNCH
7. CUT
8. CARRY OUT
9. ACHIEVE
10. REACH

d. a decision

a. a long time

b. a decision

c. appropriate measures

d. a deadline

a. progress

b. something to eat

c. shares in a company

d. a meeting

a. a deadline

b. customers expectations

c. an appointment

d. a target

a. a product

b. a ship

c. a campaign

d. a target

a. costs

b. jobs

c. a decision

d. a price

a. a meeting

b. duties

c. research

d. market survey

a. progress

b. a breakthrough

c. a job

d. little

a. a decision

b. a strategy

c. an agreement

d. a target

7. Your pay
Match each form of payment with the right person:
1. grant

a. author

2. salary

b. senior manager

3. wage

c. laid-off employee

4. commission

d. government

5. fees

e. blue-collar worker

6. dividend

f. retired employee

7. royalty

g. sales representative

8. stock option

h. student

9. pension

i. consultant

10. tax

j. shareholder

11. redundancy pay

k. white-collar worker

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8. Price-demand relationship
Find words or phrases in the text which mean more or less the same as the phrases given:

The Crown slips US truck giant

drops top seller
FD Auto, the largest independent truck manufacturer in the USA,
yesterday announced plans to end production of its biggest-selling
truck, the Crown 5000. Over half a million Crown trucks have been
sold in 20 years, but sales in the past five years have declined to
9,000 last year.
Three years ago the company cut prices by 20% to try to stimulate
demands but sales rose by less than 5%. The price cut ate up the
entire margin. Even in the normally price-sensitive US truck market,
the Crown could not recover.
Its a sad day, but we have to face reality. The Crown has passed
its sell-by-date, said Laurie Seller, the Marketing Manager for FD
Auto. He accepted that the price cut had failed saying that the
company had miscalculated. Demand for the Crown is not totally
inelastic: price does not affect demand. Its a dead truck. We cannot
make any profit.
It is not all bad news for FD Auto, however. Annual 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
3. easily influenced by price changes
4. is old-fashioned
5. reduction in price
6. not affected by price changes

7. sales in a year
8. total sales

9. Placing an order: covering letter

F. Lynch & Co. Ltd

Head Office
Nesson House
Newell Street
Birmingham
B33EL
Telephone: + 44(0)21 2366571
Fax: + 44(0)21 2366571
Email: pcrane@lynch.co.uk
www.lynch.com
Your ref: D/1439
Our ref: Order DR4316

Satex S.p.A
Via di Pietra Papa
00146
Roma
ITALY
9 March 2006
Attn. Sig. D. Causio
Dear Sig. Causio
Please find enclosed our official order, No.DR4316.
For this order, we accept the 15% trade discount you offered, and the terms of payment (sight
draft, CAD) but hope you are willing to review these terms if we decide to order again.
Would you please send the shipping documents and your sight draft to Northminster Bank (City
Branch), Deal Street, Birmingham B3 1SQ.
If you do not have any of the items we have ordered currently in stock, please do not send
alternatives.
We would appreciate delivery within the next six weeks, and look forward to your
acknowledgement.
Yours sincerely
Peter Crane
Peter Crane
7

Chief Buyer
Enc. Order No.DR4316