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MỤC LỤC
UNIT 16: CORPORATE FINANCE ............................................................................................................. 5
Question 1: What does the term “corporate finance” refer to? .............................................................. 5
Question 2: What is one of the main functions of corporate finance? .................................................... 5
Question 3: What do you think are important objectives of corporate finance? .................................. 5
Question 4: What does corporate finance include? .................................................................................. 5
Question 5: In "Planning the finance", what should financial managers take into consideration? .... 5
Question 6: What sources of finance can finance managers think of when they want to raise more
capital? ......................................................................................................................................................... 5
Question 7: How is the capital of a firm basically classified? ................................................................. 5
Question 8: How are Fixed capital and Working capital often used? .................................................... 5
Question 9: What are the tasks of finance managers in monitoring the fianance? ............................... 6
SUMMARY .................................................................................................................................................. 6
UNIT 18: MANAGEMENT OF WORKING CAPITAL............................................................................. 7
Question 1: For what purpose is permanent working capital required? ............................................... 7
Question 2: For what purpose is temporary working capital is needed? ............................................... 7
Question 3: What does the term “overdraft facitily” mean? ................................................................... 7
Question 4: What are included in inventories of a company? ................................................................. 7
Question 5: What happens to the production system of a company if its inventories controlled too
stringently?................................................................................................................................................... 7
Question 6: What can cause the disruption in production? .................................................................... 7
Question 7: What does the “ just-in-time” philosophy refer to ? ............................................................ 7
Question 8: What are the tasks of financial management in managing debtors ? ................................ 7
Question 9: What are the tasks of financial management in managing cash?....................................... 7
SUMMARY .................................................................................................................................................. 8
UNIT 19: MARKETING ................................................................................................................................ 9
Question 1: What does the term “market opportunities” in the second paragraph mean? ................. 9
Question 2: Why should the production department should understand the marketing concept? ..... 9
Question 3: Why must the company consider the existence of competitors?......................................... 9
Question 4: What are the elements of the marketing mix? ..................................................................... 9
Question 5: What aspects are considered in marketing products? ......................................................... 9
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Question 6: What factors are included in promotion? ............................................................................. 9
Question 7: Which is larger, consumer market or producer market? ................................................... 9
SUMMARY ................................................................................................................................................ 10
UNIT 20: SETTING THE PRICE ............................................................................................................... 11
Question 1: How are prices set? ............................................................................................................... 11
Question 2: what was given impetus for setting one price for all buyers at the end of the nineteenth
century? ...................................................................................................................................................... 11
Question 3: what are common mistakes in setting the price? ............................................................... 11
Question 4: how are prices set in different types of corporation?......................................................... 11
Question 5: What do sellers and buyers do to reach a suitable price? ................................................. 12
Question 6: What do you think about setting one price for all buyers? ............................................... 12
Question 7: What was given impetus for setting one price for all buyers at the end of the nineteenth
century? ...................................................................................................................................................... 12
Question 8: How does price affect buyer choice? ................................................................................... 12
Question 9: What elements in the marketing mix represent costs? ...................................................... 12
Question 10: Should prices be various for different products and different market segments? Why?
..................................................................................................................................................................... 12
Question 11: What are the most common mistakes in the setting the price?....................................... 12
Question 12: How are prices set in different types of organization? .................................................... 12
SUMMARY ................................................................................................................................................ 13
UNIT 21: WHAT IS ACCOUNTING ? ....................................................................................................... 14
Questions 1: What is the basic purpose of accounting? ......................................................................... 14
Question 2: What are three types of accounting information? ............................................................. 14
Question 3: Why is financial accounting is considered as “general purpose” accounting
information?............................................................................................................................................... 14
Question 4: For what purposes is management accounting information used? .................................. 14
Question 5: What are differences between financial accounting and management accounting? ...... 14
Question 6: How is tax accounting information different from financial accounting information? . 14
Question 7: Why is “tax planning” more challenging than the preparation of an income tax return?
..................................................................................................................................................................... 15
SUMMARY ................................................................................................................................................ 15
UNIT 22: FINANCIAL STATEMENTS ..................................................................................................... 16
Question 1: Why do businesses need financial statements?................................................................... 16
Question 2: What are financial statements used for?............................................................................. 16
Question 3: How profits are usually split? .............................................................................................. 16
Question 4: How many financial statements do companies include in their annual report? ............. 16
Question 5: What does the profit and loss account show? ..................................................................... 16
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Question 6:What does the balance sheet show? ...................................................................................... 17
Question 7:What do a business’s assets include? ................................................................................... 17
Question 8:What do liabilities include? ................................................................................................... 17
Question 9:What do a company’s net assets consist of? ........................................................................ 17
Question 10:Where is flow of cash both in and out of the company recorded? ................................... 17
Question 11: Why it is said that records exists in several forms? ......................................................... 17
Question 12: What are financial statements used for?........................................................................... 17
Question 13: What are three common financial statements? ................................................................ 18
Question 14: How profits are usually split? ............................................................................................ 18
Question 15: How are financial recordings done? .................................................................................. 18
SUMMARY ................................................................................................................................................ 19
UNIT 25: FINANCIAL ANALYSIS ............................................................................................................ 21
Question 1: What is financial analysis? ................................................................................................... 21
Question 2: For what purpose is analysis financial used internally? ................................................... 21
Question 3: For what purpose is financial analysis used externally? ................................................... 21
Question 4: Who provides financial data about the company’s operating performance and financial
position ? .................................................................................................................................................... 21
Question 5: Where can analysts find market data and economic data?............................................... 21
Question 6: How many sources of data are available for financial analysis? ...................................... 21
Question 7: What is a ratio? ..................................................................................................................... 21
Question 8: What is a financial ratio? ..................................................................................................... 22
Question 9: By construction what can financial ratios be classified into? ........................................... 22
Question 10: What are six aspects of operating performance and financial condition we can evaluate
from financial ratios? ................................................................................................................................ 22
SUMMARY ................................................................................................................................................ 23
UNIT 26: AUDITNG ..................................................................................................................................... 25
Question 1: What does auditing function of accounting involve? ......................................................... 25
Question 2: How is auditing done? .......................................................................................................... 25
Question 3: What kind of system for checking on operating and recording........................................ 25
Question 4: What do accountants do to maintain an internal audit? ................................................... 25
Question 5: What is the aim of internal auditors?.................................................................................. 25
Question 6: What different emphases can be placed on an internal auditor’s report? ...................... 25
Question 7: What weakness exists in the internal auditing system? ..................................................... 25
Question 8: What happens if management receives the incorrect information? ................................. 25
Question 9: How can management overcome this weakness? ............................................................... 26
SUMMARY ................................................................................................................................................ 26
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UNIT 27: INTERNATIONAL BUSINESS ................................................................................................. 28
Question 1. How might underdeveloped countries benefit from international trade?........................ 28
Question 2. What types of business opportunities are presented as a result of interdependence
among trading nation? .............................................................................................................................. 28
Question 3. What four factors mentioned would contribute to a country’s production efficiency? .. 28
Question 4. According to the text, what is the main difference between Smith’s theory and Ricardo’s
theory? ........................................................................................................................................................ 29
Question 5. Explain how exporting countries become wealthy? ........................................................... 29
Question 6. Why would a country object to foreign countries dumping goods? ................................. 29
Question 7. Why might a government subsidize an inefficient export industry? ................................ 29
Question 8. What are two forms of protectionism? ................................................................................ 29
Question 9. What is one advantage of tariffs over quotas to a government? ....................................... 29
Question 10. Why do tariffs and quotas have different effects on the market? ................................... 29
Question 11. With a floating exchange rate, what would happen to the exchange value of currency
from a country that exports more than it imports?................................................................................ 29
Question 12: Explain why the value of the currency of a country that imports more than its exports
would tend to decrease? ............................................................................................................................ 30
Question 13. What would be a good reason for an exporting company to set up a subsidiary in the
country that imports its products?........................................................................................................... 30
Question 14. What is a parent company? ................................................................................................ 30
Question 15. Why might a country encourage foreign investment or the establishment of
subsidiaries of foreign companies? .......................................................................................................... 30
SUMMARY ................................................................................................................................................ 30
UNIT 29: TRADE BARRIERS .................................................................................................................... 32
Question 1. What are trade barriers? ...................................................................................................... 32
Question 2: What reasons do nations commonly use trade barriers? .................................................. 32
Question 3: What are the most common used trade barriers? ............................................................. 32
Question 4: What result in using non-tariffs?......................................................................................... 32
SUMMARY ................................................................................................................................................ 32
UNIT 30: TRADE SURPLUS AND DEFICIT ........................................................................................... 33
Question 1: What does "bottom line" in the first paraghaph refer to?................................................ 33
Question 2: What does the current account tell us? ............................................................................... 33
SUMMARY ................................................................................................................................................ 34

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UNIT 16: CORPORATE FINANCE

Question 1: What does the term “corporate finance” refer to?
→ Corporate finance refers to a broad term that is used to collectively identify the
various financial dealings undertaken by a corporation. Generally, the term also
applies to the various methods, procedures, and configurations of the financial
operations employed by a given company.

Question 2: What is one of the main functions of corporate finance?

→ One of the core functions of responsible corporate finance is to make wise use of
the financial resources available to the company.

Question 3: What do you think are important objectives of corporate finance?

→ The goal is to ensure that the corporation is achiving the maximum benefit from
available financial resources, while incurring the minimum amount of expenditure
required attaining those benefits.

Question 4: What does corporate finance include?

→ Corporate finance includes planning ,raising,investing and monitoring of finance
in order to achieve the financial objectives of the company.

Question 5: In "Planning the finance", what should financial managers take into
consideration?
→ He takes decisions on questions like:
1. How much finance is required by the company?
2. What are the sources of finance?
3. How to use the finance profitably?

Question 6: What sources of finance can finance managers think of when they
want to raise more capital?
→ Finance can be collected from many sources, e.g., shares, debentures, banks,
financial, creditors, etc.

Question 7: How is the capital of a firm basically classified?

→ Working capital and Fixed capital.

Question 8: How are Fixed capital and Working capital often used?
→ Fixed capital is used to purchase fixed assets like land, buildings, machinery, etc
and working capital is used to purchase raw materials.

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Question 9: What are the tasks of finance managers in monitoring the fianance?
→ He has to minimize the cost of finance, the watage and misuse of finance, the risk
of investment of finance and get maximum return on the finance.

SUMMARY

Corporate Finance
Definition CF is a broad term that is used to collectively identify the various
financial dealings undertaken by a corporation.

Function One of the core functions of CF is to make wise use of the

financial resources available to the company.

Objectives The goal is to ensure that the corporation is achieving the

maximum benefit from available financial resources, while
incurring the minimum amount of expenditure required attaining
those benefits.

Processing ֍ Planning the finance

֍ Raising the finance

֍ Investing the finance

֍ Monitoring the finance



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UNIT 18: MANAGEMENT OF WORKING CAPITAL

Question 1: For what purpose is permanent working capital required?
→ Permanent working capital is tied up in keeping the business flowing throughout
the year.

Question 2: For what purpose is temporary working capital is needed?

→ Temporary working capital is needed from time to take account of seasonal,
cyclical or unexpected fluctuation in the business.

Question 3: What does the term “overdraft facitily” mean?

→Overdraft facility is serviced for the unexpected fluctuation in the business.

Question 4: What are included in inventories of a company?

→ Inventories can be further divided into inventories of raw materials, working in
progress and finished goods.

Question 5: What happens to the production system of a company if its

inventories controlled too stringently?
→ If its inventories controlled too stringently it can lead to disruption in production .

Question 6: What can cause the disruption in production?

→ The disruption in production can caused by the delay in receiving raw materials, a
failure to take account of costly price rises in the pipeline, a failure to keep the
production volume required by future sales, and resulting expensive and damaging
effects on customer goodwill.

Question 7: What does the “ just-in-time” philosophy refer to ?

→ The just-in-time philosophy, developed in Japan, is aimed at reconciling these
often conflicting interests and keeping inventory costs to a minimum.

Question 8: What are the tasks of financial management in managing debtors ?

→ Seeing that generous credit terms are negotiated with suppliers but minimal credit
is offered to customers. A balance must be achieved between getting and giving good
credit terms in order to attract customers and maintain positive relationships with
suppliers on one hand, and minimizing cash outlay on the other hand.

Question 9: What are the tasks of financial management in managing cash?

→ Sound cash management will ensure that adequate cash is always available for
meeting the company's day-to-day debts and that there is also a small reserve on hand
to meet contigencies.
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SUMMARY
Working capital

Core - To provide the correct amount of working capital at the right time and in
function the right place to realize the greatest return on investment.

- Divide into:
Raw materials,
Working in
Tied up in
Progress,
keeping the
business Finished goods.
Permanent Inventories
flowing
- What can
throughout
cause the
the year.
disruption in
production?

Classifications - The “just-in-

Types time” philosohy
Needed
from time - Task of
to take financial
Debtors
account of management in
seasonal, managing
debtors
Temporary cyclical or
unexpected
fluctuation
in the - Task of
business. financial
Cash management in
managing cash

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UNIT 19: MARKETING

Question 1: What does the term “market opportunities” in the second

paragraph mean?
→ The term “market opportunities” in the second paragraph mean profitable
possibilities of filling unsatisfied needs of creating new ones in areas in which the
company is likely to enjoy a differential advantage, due to its distinctive
competencies.

Question 2: Why should the production department should understand the

marketing concept?
→ Because there is a lot of the work of marketing has been done before the final
product or service come into existence.

Question 3: Why must the company consider the existence of competitors?

→ Because the existence of competitors always have to be identified, monitored and
defeated in the search for loyal customers.

Question 4: What are the elements of the marketing mix?

→ The elements of the marketing mix are product, place, promotion and price.

Question 5: What aspects are considered in marketing products?

→ Aspects to be considered in marketing products include quality, features (standard
and optional), style, brand name, size, packaging, services and guarantee.

Question 6: What factors are included in promotion?

→ Promotion groups together advertising, publicity,sales promotion and personal
selling.

Question 7: Which is larger, consumer market or producer market?

→ The producer market is actually larger than the consumer market.

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SUMMARY

1. The differences between The selling and Marketing concepts:

Starting
Focus Means Ends Function
point

Assumes that
resisting consumers
The Profits have to be
selling Selling and through persuaded by
concepts Factory Products sales vigorous hard-
promoting selling techniques to
buy non-essential
goods and services.

Profits Assumes that the

producer’s task is to
The through
Customer Coordinated find wants and fill
marketing Market customer them. Producer
needs marketing satisfaction makes product that
concept
will be bought.

2. Market Opportunities:
- Are profitable possibilities of filling unsatisfied needs of creating new ones in
areas in which the company is likely to enjoy a differential advantage, due to its
distinctive competencies (the things it does particularly well).
- Are generally isolated by market segmentation.
- The production department should understand the marketing concept because
that much of the work of marketing has been done before the final product or
service come into existence, it means that the marketing concept has to be
understood throughout the company.
- The company consider the existence of competitors who always have to be
identified, monitored and defeated in the search for loyal customers.

3. Market research:
- Minimize risk of launching a product or service solely on the basis of intuition
or guesswork.
- By collecting and analysing information about the size of a potential market.

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4. Marketing mix:
- It’s all the various elements of a marketing program, their integration, and the
amount of effort that a company can expend on them in order to influence the target
market.
- The elements of the marketing mix: “4Ps”: They are products, place,
promotion and price.
+ Products include quality, features, style, brand name, size, packing,
services and guarantee.
+ Place includes distribution channels, location of paints of sales,
transport, inventory size.
+ Promotion groups together advertising, publicity, sales promotion,
personal selling.
+ Price includes the basis list price, discount, the length of the payment
period, possible credit terms.



UNIT 20: SETTING THE PRICE

Question 1: How are prices set?

→ Prices are set through bargaining. The sellers would ask for a higher price than
they expected to receive, and buyers would offer less than they expected to pay to
arrive at an acceptable price.

Question 2: what was given impetus for setting one price for all buyers at the
end of the nineteenth century?
→ It was given impetus by the development of large-scale retailing at the end of the
nineteenth century.

Question 3: what are common mistakes in setting the price?

→ The most common mistakes are: Pricing is too cost oriented, price is not revised
often enough to capitalize on market changes, price is set independently of the rest of
the marketing mix rather than as an intrinsic element of marketpositioning strategy,
and price is not varied enough for different product items and market segments.

Question 4: how are prices set in different types of corporation?

→ Companies handle pricing in many ways. In small companies, prices are set by top
management. In large companies, pricing is handled by divisional and product-line
managers. In some industries, a pricing department is established to set prices or
assist others in determining suitable prices.

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Question 5: What do sellers and buyers do to reach a suitable price?

→ Sellers and buyers made bargaining to reach suitable price

Question 6: What do you think about setting one price for all buyers?
→ One price set for all buyers is a modern idea.

Question 7: What was given impetus for setting one price for all buyers at the
end of the nineteenth century?
→ It was given impetus by the development of large-scale retailing at the end of the
nineteenth century.

Question 8: How does price affect buyer choice?

→ Price has played an important role in buyer choice :
- It’s major determinant of buyer choice.
- It’s one of the most important elements determining company market share
and profitability.
- It’s only element in the marketing mix that producers revenue.

Question 9: What elements in the marketing mix represent costs?

→ Price is the only element in the marketing mix that produces revenue, the other
elements represent costs.

Question 10: Should prices be various for different products and different
market segments? Why?
→ Prices should be various for different products and different market segments.
Because One of the mistakes of companies: price is not varied enough for different
product items and market segments.

Question 11: What are the most common mistakes in the setting the price?
→ Company usually make some common mistake in the setting the price :
- Price is too cost oriented
- Price is not revised often enough to capitalize on market changes
- Price is set independently of the rest of the marketing mix rather than as an
intrinsic element of marketing – positioning strategy.
- Price is not varied enough for different product items and market segments.

Question 12: How are prices set in different types of organization?

→Price are set in different ways in different types of companies:
- In small companies, prices are often set by top management rather than
by the marketing or sales department.
- In large companies, pricing is typically handled by divisional and
product-line managers.

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- In industries where pricing is a key factor (aerospace, railroads, oil

companies will often establish a pricing department to set prices or assist others in
determining appropriate prices.
SUMMARY
Price
- Price is the only element in the marketing mix that produces
Denification revenue, the other elements represent costs.

The difference - In the past, prices were set by buyers and sellers negotiating with
between each other through bargaining, they would arrive at an acceptable
setting prices price.
- Now prices are determined by the demand and supply and are set
now and in
for all buyers.
the past

- It’s major determinant of buyer choice.

- It’s one of the most important elements determining company
Roles market share and profitability.
- It’s only element in the marketing mix that produces revenue.

Price are set in different ways in different types of companies:

- In small companies, prices are often set by top management.
Ways of
- In large companies, prices are handled by divisional and product-
setting-prices line managers.
- In industries, prices are determined by a pricing department.

- Company usually make some common mistake in setting the

price.
+ Price is too cost oriented.
Common + Price is not revised often enough to capitalize on market
mistakes in changes.
the setting the + Price is set independently of the rest of the marketing mix
price rather than as an intrinsic element of marketing-positioning
strategy.
+ Price is not varied enough for different product items and
market segments.

In order to handle pricing well, companies should consider prices in

relation to order factors including other 3ps of marketing-mix.
The solution
+ Prices should not be too cost oriented.
to handle + In addition, prices should be revised often enough to
good prices capitalize on market changes.
+ Price should be varied enough for different product items
and market segments.
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UNIT 21: WHAT IS ACCOUNTING ?

Questions 1: What is the basic purpose of accounting?

→ The basic purpose of accounting is to measure and communicate economic events.

Question 2: What are three types of accounting information?

→ Three types of accounting information are financial accounting, management
accounting, and tax accounting.

Question 3: Why is financial accounting is considered as “general purpose”

accounting information?
→ Because financial accounting information is used for so many different purposes.
It is used to assist investors and creditors in deciding where to place their scarce
investment resources. It also is used by managers and in income tax returns.

Question 4: For what purposes is management accounting information used?

→ Management accounting is used to set the company’s overall goals, evaluate the
performance of departments and individuals.

Question 5: What are differences between financial accounting and management

accounting?
- Financial accounting is used to assist investors and creditors in deciding
where to place their scarce investment resources.
- Management accounting is used to set the company’s overall goals, evaluate
the performance of departments and individuals.
- Financial accounting information is public information but management
accounting information is confidential information.

Question 6: How is tax accounting information different from financial

accounting information?
- Financial accounting refers to information describing the financial resources,
obligations, and activities of an economic entity. It is used to assist investors and
creditors in deciding where to place their scarce investment resources. It also is used
by managers and in income tax returns.
- But, tax accounting is often adjusted and reorganized to comply with
specialized legal requirements relating the company’s responsibility to pay an
appropriate amount of taxes. So the reports and figures based on different types of
accounting could be not the same.

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Question 7: Why is “tax planning” more challenging than the preparation of an

income tax return?
→ Because, tax returns are based upon financial accounting information. But, tax
planning means anticipating the “tax effects” of business transactions and structuring
these transactions in a manner that will minimize the income tax burden.
SUMMARY
Accounting Auditing

Accounting is the process of recording, Auditing is the task of

classifying and summarizing economic checking and affirming the
Definition events in a logical manner for the fairness and reliability of
purpose of providing financial financial records on the base of
information for decision making. accounting standards.

The function of accounting, to an entity Auditing activities perform

and to society as a whole, is to provide two basic functions of
Function certain types of quantitative verifying and expressing
information that management and opinions on audit subjects.
others can use to make decisions.

The purpose of accounting is to provide The purpose of an audit is for

the information that is needed for sound an independent third party to
Purpose
economic decision making . examine the financial
statements of an entity.

Financial Management
Tax Accounting
Accounting Accounting

Describing the The development and Accounting methods

financial resources, interpretation of to prepare
obligations, and accounting information information on a
Definition
activities of an intended specifically to person’s income or a
economic entity. assist management in company’s earning
running the business. for the tax authority.

To assist investors To set the company’s - The preparation of

and creditors in overall goals, evaluate an income tax return.
Purpose deciding where to the performance of
- Tax planning
place their scarce departments and
investment resources. individuals.

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Mainly outside the The members inside the Department of

enterprise: enterprise: owners, Taxation, Managers,
Shareholders, Tax directors, managers, Tax Offices, State
Users
Offices, Financial supervisors. agencies
Management
Agencies, ...

Financial report, Management Information Tax reports

Financial Planning System,
Tools
Revaluation Accounting,
Integrated Auditing.

UNIT 22: FINANCIAL STATEMENTS

Question 1: Why do businesses need financial statements?

→ Because businesses want to find out if they are making a profit.

Question 2: What are financial statements used for?

→ They are used as a basis for business decisions such as:
+ Allocation of financial resources.
+ Development of new products.
+ Expansion of operations.
- They also used for determining income taxes liabilities

Question 3: How profits are usually split?

→ Part of the profit goes to the government in taxation; part is usually distributed to
shareholders (stockholders) as dividend, and part is retained by the company.

Question 4: How many financial statements do companies include in their

annual report?
→ Companies generally include three financial statements in their annual reports
such as the income statement, the balance sheet and the funds statement.

Question 5: What does the profit and loss account show?

→ The profit and loss account (GB) or income statement (US) shows earning and
expenditure. It usually gives figures for total sales or turnover and costs and
overhead.

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Question 6: What does the balance sheet show?

→ The balance sheet shows a company’s financial situation on a particular date,
generally the last day of the financial year.

Question 7: What do a business’s assets include?

→ A business’s assets include debtors or accounts receivable as it is assumed that
these will be paid.

Question 8: What do liabilities include?

→ Liabilities include creditors or accounts payable, as these will have to be paid.

Question 9: What do a company’s net assets consist of?

→ A company’s net assets consist of share capital (money received from the issue of
shares), share premium (GB) or paid- in surplus (US) (any money realized by selling
shares at above their nominal value), and the company’s reserves, including the
year’s retained profits.

Question 10: Where is flow of cash both in and out of the company recorded?
→ The flow of cash in and out of the company is recorded between balance sheet
dates.

Question 11: Why it is said that records exists in several forms?

- In daily business operations, recording of business transactions are first made in
a journal.
- In the journal, bookkeepers record sales, uses of raw materials, purchases.
- Periodically, bookkeepers transfer figures form the journals to ledgers.
- The ledgers is a book containing all the accounts of a company.
- An account is an financial record which contain information about a group of
similar transactions.

Question 12: What are financial statements used for?

- They are used as a basis for business decisions such as:

+ Allocation of financial resources.
+ Development of new products.
+ Expansion of operations.
- They also used for determining income taxes liabilities.

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Question 13: What are three common financial statements?

- Three common financial statements are the balance sheet, the income statement
and the statement of changes in financial position (the cash flow statement).
+ The balance sheet shows the company’s financial situation on a particular
date. It lists the company’s assets, its liabilities and shareholder’s funds.
+ The income statement show earnings and expenditures. It usually gives
figures for total sales or turnover and cost and overhead.
+ The cash slow statements show the flow cash in and out of the business
between balance sheet date

Question 14: How profits are usually split?

- Part of profits goes to government in taxation

- Part is usually distributed to shareholders as dividend.
- Part is retained by the company.

Question 15: How are financial recordings done?

- Liabilities include creditors account payable.

- Net assets consist of debtor or account receivable

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SUMMARY
Accounting
Accounting refers to the design, maintenance and interpretation over
Detification
a period of time.

- Is sometimes called the book of original entry -

Recording daily business transactions (Sales, uses of
Journal raw materials and purchases).

Forms
- Is a book containing all the accounts of a company.

- An account is a financial record which cointains

Ledger
information about a group of similar transactions.

Financial records
- Allocating of financial resources, development of new products and
expansion of operations.
Purposes
- Determining income taxes liabilities.

The income - Shows earnings and expenditure, gives fingures for

statement total sales and turnover and cost or overhead.

(The profit - Total sales > Costs ->Profits ( Taxation/

and loss Dividends/Retained by the company)
account)

Classification
- Shows a company’ s financial situation on a
particular date.
The
balance - It lists the company’ s assets/ liabilities and share
sheet holders’s funds

- The basic accounting equation:

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Assets = Liabilities + Owner’s equity or Net assets

Assets - Liabilities = Owner’s equity or Net assets

The cash - Shows the flow of cash in and out of the business
flow between balance sheet dates.
statement
+ Sources of funds

+ Applications of funds

The cash flow

Income statement Balance sheet
statement

Shows a company’s
financial situation on a Shows the flow of cash
Shows earning and particular date, generally in and out of the
Function the last day of the
expenditure. business between
financial year. balance sheet dates.

+ Turnover consist of
sales, financial activities
income and other
income.
+ Overheads such as
cost of goods sold,
Structure
financial activities
expenses, selling
expenses and so on.
+ Profit (Taxation/
Dividends/Retained by
the company)
+ Sources of funds
include trading profits,
+ Assets include debtors depreciation provisions,
or accounts receivable as sales of assets,
it is assumed that these borrowing, and the
will be paid. issuing of shares.
+ Liabilities include + Applications of funds
creditors or accounts include purchases of
payable, as these will fixed assets or financial
have to be paid. assets, payment of
dividends, repayment of
+ Owners’ Equity
includes share capital, loans, and- in a bad year
share premium and the -trading losses.
company’s reserves.

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Profit = Turnover –
Assets = Liabilities + Net cash flow = Cash
Equation Overheads
Owners’ Equity inflows – Cash outflows

UNIT 25: FINANCIAL ANALYSIS

Question 1: What is financial analysis?

→ Financial analysis is the selection, evaluation, and interpretation of financial data,
along with other pertinent information, to assist in investment and financial decision-
making

Question 2: For what purpose is analysis financial used internally?

→ Financial analysis is used internally to evaluate issues such as employee
performance, the efficiency of operations, and credit policies.

Question 3: For what purpose is financial analysis used externally?

Financial analysis is used externally to evaluate potential investments and the credit-
worthiness of borrowers, among other things.

Question 4: Who provides financial data about the company’s operating

performance and financial position ?
→ Company itself provides financial data about its operating performance and
financial position through its annual reports and required disclosures

Question 5: Where can analysts find market data and economic data?
- Market data such as the market prices of securities of publicty-traded
corporations can be found in the inancial press and the clectronic media daily.
- Economic data, such as the Gross Domestic Product and Consumer Price
Index. This is economic data that is readily available from government and private
sources.

Question 6: How many sources of data are available for financial analysis?
→ There are three sources of data being available for financial analysis: financial
statement data, market data and economic data

Question 7: What is a ratio?

→ A ratio is a mathematical relation between one quantity and another.

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Question 8: What is a financial ratio?

→ A financial ratio is a comparison between one bit of financial information and
another

Question 9: By construction what can financial ratios be classified into?

→ By construction, ratios can be classified as a coverage ratio, a return
ratio, a turnover ratio, or a component percentage.
- A coverage ratio is a measure of a company’s ability to satisfy
particular obligations.
- A return ratio is a measure of the net benefit, relative to the resources
expended
- A turnover ratio is a measure of the gross benefit, relative to the
resources expended.
- A component percentage is the ratio of a component of an item to
the item.

Question 10: What are six aspects of operating performance and financial
condition we can evaluate from financial ratios?
→ There are six aspects of operating performance and financial condition we can
evaluate from financial ratios:
- A liquidity ratio provides information on a company’s ability to meet its
short- term, immediate obligations.
- A profitability ratio provides information on the amount of income from each
dollar of sales.
- An activity ratio relates information on a company’s ability to manage its
resources (that is, its assets) efficiently.
- A financial leverage ratio provides information on the degree of a company’s
fixed financing obligations and its ability to satisfy these financing obligations.
- A shareholder ratio describes the company’s financial condition in terms of
amounts per share of stock.
- A return on investment ratio provides information on the amount of profit,
relative to the assets employed to produce that profit.

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SUMMARY

Financial analysis
Financial analysis is the selection, evaluation, and interpretation of
financial data, along with other pertinent information, to assist in
Definition investment and financial decision-making.

- Internally to evaluate issues such as employee perfomance,

efficiency of operations, credit policies.

Intended use - Externally to evaluate potential investment and the credit-

worthiness of borrowers.

Is provided by the company

Sources of in its annual reports and
Finacial statement data require disclosures.
data

Is found in the finacial press

Market data such as the market price and the electricity mediadaily.
of securities

Available from gorverment

Economic data (GDP, GPI) and private sources.

Ratio
- A ratio is a mathematical relation between one quantity and
another.

- A financial ratio is a comparison between one bit of financial

Definition
information and another.

- Current ratio is the comparison between current assets and current

liabilitieS.

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- A coveraged ratio

- A return ratio

By construction - A turnover ratio

- A component percentage

- A return on investment ratio

Classify
- A liquidity ratio

- A profitability ratio
By their general
- An activity ratio
characteristics
- A financial leverage ratio

- A shareholder ratio

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UNIT 26: AUDITNG

Question 1: What does auditing function of accounting involve?

→ Auditing is an accounting function that involves the review and evaluation of
finacial records.

Question 2: How is auditing done?

→ Auditing is done by someone other than the person Who entered the transactions
in the records.

Question 3: What kind of system for checking on operating and recording

jobs is maintained by many organizations?
→ Even those companies that do not conduct an internal audit need to maintain
a system of internal control.

Question 4: What do accountants do to maintain an internal audit?

→ They do:
+ Review operating procedures and financial records and report to
management on the current state of the company’s fiscal affairs.
+ Make suggestions to management for improvements in the standard
operating procedures.
+ Check the accounting records in regard to completeness and accuracy,
making sure that all irregularities are corrected.
+ Seek to ensure that the various departments of the company follow the
policies and procedures established by management.

Question 5: What is the aim of internal auditors?

→ The internal auditors seek to ensure that the various department of the
company follow the policies and produres establishes by management.

Question 6: What different emphases can be placed on an internal auditor’s

report?
→ The emphasis placed on different parts of the internal auditor’s report varies
from company to company.

Question 7: What weakness exists in the internal auditing system?

→ If a report is unfavorable, it may not be shown to the person in management
who can correct the problem.

Question 8: What happens if management receives the incorrect information?

→ Management receives the false impression that things are running smoothly.
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Question 9: How can management overcome this weakness?

→ To make effective use of an internal auditing function, management must
ensure that reports are received at all levels with an absolutely objective attitude.

SUMMARY

Auditing
- Auditing is an accounting function that involve the review and
evaluation of financial records.

Definication - It is done by someone other than the person who entered the
transactions in the records.

Auditing activities perform two basic functions of verifying and

Functions
expressing opinions on audit subjects.

The purpose of auditing is for an independent third party to

Purposes
examine the financial statements of an entity.

The basic objectives with which auditing is done are:

Objectives of - Verification of accounts and statements.
auditing - Detection of errors or frauds.
- Prevention of errors or frauds.

There are five types of audit:

- Financial audit.
- Operational audit.
Types of audit
- Compliance audit.
- Information systems audit.
- Investigative audit.

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AUDITING PROCESSS
1. Audit planning and strategy: Information and established criteria.
2. Fieldwork: collecting information and accumulating evidence.
3. Analysis: evaluating the impact of evidence.
4. Exercising professional judgement.
5. Reporting and documentation.

Internal auditing External auditing

Internal Audit refers to an ongoing
audit function performed within an
Meaning
organization by a separate internal
auditing department
External Audit is an audit
function performed by the
independent body which is
not a part of the organization.

To review the routine activities and To analyse and verify the

Objective provide suggestion for the financial statement of the
improvement. company.

Conducted Company’s employees an outside audit firm.

by

Are hired by the company Are appointed by a

Auditors
shareholder vote.

Stakeholders, such as
Users of
Management investors, creditors, and
report
lenders.

Period Continuous Process Once in a year

Accuracy and Validity of

Checks Operational Efficiency
Financial Statement

+ Continuously review operating procedures and financial records.

+ Report to management on the current state of the company’s fiscal

affairs.
The tasks + Check the accounting records in the regard to completeness and
accuracy.

+ Make sure that irregularities are corrected.

+ Seek to ensure that the various departments of the company follow

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the policies and procedures established by management.

If a report is unfavorable, it may not be shown to the person in

The management who can correct the problem. As a result, management
weaknesses receives the false impression on the company's operation.

The emphasis placed on different parts of the internal auditor’s report:

- It varies from company to company
+ In some organizations: The auditor’s major or even sole function is to report
on the completeness and accuracy of the books of account, as the financial
records are known collectively.
+ In more progressive companies: Greater attention may be paid to the
auditor’s suggestions.

UNIT 27: INTERNATIONAL BUSINESS

Question 1. How might underdeveloped countries benefit from international

trade?
→ Countries have developed their economies, increased production of goods, and
met market demands through increased world trade.

Question 2. What types of business opportunities are presented as a result of

interdependence among trading nation?
→ They are:
- Increasing production of goods: because certain countries are able to produce
some goods more efficiently than other countries
- Meeting market demand: they exchange goods to satisfy their need and wants

Question 3. What four factors mentioned would contribute to a country’s

production efficiency?
→ They include climate, nature sources, labor force, geographical location.

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Question 4. According to the text, what is the main difference between Smith’s
theory and Ricardo’s theory?
→ Adam Smith’s theory: the theory of absolute advantage
+ Countries import products which are most efficiently manufactured abroad
and export products which are most efficiently produced domestically.

The refined theory of David Ricardo: the theory of comparative advantage

+ An exporting country does not have to be the most efficient producer of the
product; it only have to be more efficient than the country which imports the product.

Question 5. Explain how exporting countries become wealthy?

→ Exporting countries become wealthy because a country enjoys advantage if it
exports more than it imports and wealth accures to the exporting country.

Question 6. Why would a country object to foreign countries dumping goods?

→ A country object to foreign countries dumping goods because dumping is selling
on a foreign market at a price below the cost of production which could be
detrimental to domestic firms of the marketing country.

Question 7. Why might a government subsidize an inefficient export industry?

→ Because if a government subsidize an inefficient export industry, it allows
companies to sell products at low price domestically or even oversea.
This may lead to an increase in demand and supply as well which promote these
inefficient export industries.

Question 8. What are two forms of protectionism?

→ They are specific and ad valorem.

Question 9. What is one advantage of tariffs over quotas to a government?

→ One advantage of tariffs over quotas to a government is that a tariff increases the
price of the item, raise revenue for the government, and controls consumption
through market forces.

Question 10. Why do tariffs and quotas have different effects on the market?
→ Tariffs and quotas have different effects on the market because while under quota
there may be a higher price because of a limited supply, under a tariff it is the tax that
creates a higher price: the supply is not limited.

Question 11. With a floating exchange rate, what would happen to the exchange
value of currency from a country that exports more than it imports?
→ If a country is exporting more than it imports, it is receiving foreign currency and
has a balance of trade surplus.
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Question 12: Explain why the value of the currency of a country that imports
more than its exports would tend to decrease?
→ Because, if it is importing more than it exports, it is sending money out of the
country and has a balance of trade deficit.

Question 13. What would be a good reason for an exporting company to set up a
subsidiary in the country that imports its products?
→ If transportation costs increase or currency exchange rates change, it may become
cheaper to produce the product in the marketing country, especially if large amounts
of exports are involved.

Question 14. What is a parent company?

→ Exporting companies sometimes set up subsidiaries in the market countries. The
larger company is referred to as the parent company.

Question 15. Why might a country encourage foreign investment or the

establishment of subsidiaries of foreign companies?
→ Because, foreign countries may afford them comparative advantages.

SUMMARY
1. The benefits of international business:
- Through increased world trade, countries have developed their economies,
increased production of goods, and met market demands.

2. 4 factors contribute to a country’s production efficiency include:

- Climate
- Natural resources
- Unskilled laborers
- Geographical location

3. 2 theories and the difference between them:

- Adam Smith’s theory:
+ Countries import products which are most efficiently manufactured
abroad and export products which are most efficiently produced domestically.
- The refined theory of David Ricardo:
+ An exporting country does not have to be the most efficient producer
of the product; it only has to be more efficient than the country which imports
the product.
- The main difference:
+ Smith’s theory is a theory of absolute advantage.
+ Ricardo’s is a theory of comparative advantage.
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4. The reasons why governments promote exports and restrict imports. How
they do them?
- Promote exports:
• Reasons: because a country enjoys an advantage if it exports more than it
imports. Wealth accrues to the exporting country.
• Programs:
+ Provide marketing information, establish trade missions, subsidize
exports and provide tax benefits or incentives.
+ Allow companies to sell products cheaply.
+ Dumping.

- Restrict imports:
• Reasons:
+ To protect domestic industry.
+ A country enjoys an advantage if it exports more than it imports.
+ Wealth accrues to the exporting country.
• Method: to enact protectionist controls: tariffs and quotas.

5. Two forms of import tariffs:

• Specific tariff: a certain amount of tax for each unit of the product.
• Ad valorem tariff: based on the value of the product.

6. A system of international monetary exchange rates:

• A floating rate basis: there is no official exchange rates. The rates fluctuate
according to market forces.
• If a country is exporting more than it imports, it is receiving foreign currency
and has a balance of trade surplus.
• If it is importing more than it exports, it is sending money out of the country
and has a balance of trade deficit.
→ This trend changes the demand for the currency of a country and cause its value to
float either upward or downward.



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UNIT 29: TRADE BARRIERS

Question 1. What are trade barriers?

→ Trade barriers are any of a number of government-placed restrictions on trade
between nations.

Question 2: What reasons do nations commonly use trade barriers?

→ Trade barriers can be beneficial to the aggregate domestic economy they tend to
be most beneficial, and thus most commonly promoted by domestic firms facing
competition from foreign imports.

Question 3: What are the most common used trade barriers?

→ There are 4 common used trade barriers:
+ Tariffs are simply taxes placed on imports
+ Quotas are simply a quantity restriction placed on a good, service and activity.
+ Subsidies are often placed to protect domestic industries.
+ Embargoes basically prohibit the import and export of anything with another
country

Question 4: What result in using non-tariffs?

→ The world trade organization is perhaps the widest reaching of these bodies, and it
enforces strict rules against member nations, restricting the acceptable use of things
like tariffs.

SUMMARY

Trade barriers are any of a number of government - placed

Definition
restrictions on trade between nations.

Advantages Disadvantages

+ Trade barriers tend to be + By increasing domestic price,

beneficial to the aggregate restricting access to imports tend
The Advantages domestic economy. to be harmful to domestic
and Disadvantages consumers.
+ Domestic firms benefit
higher sales, greater profits
and more income to
resource owners.

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+ To protect domestic employment.

+ To protect relatively young domestic industries.

+ To prevent unfair trade practices of foreign firms.

5 common
justifications + To prevent dumping.

+ To protect firms and industries that produce output vital to the

security and defense of the nation.

+ Tariffs are simply taxes placed on imports.

+ Quotas are simply a quantity restriction placed on a good,

4 common used service and activity.
trade barriers + Subsidies are often placed to protect domestic industries.

+ Embargoes basically prohibit the import and export of

anything with another country.

Finally, it refers to the tendency of almost parts of the world to try to curtail the use
of trade barriers

UNIT 30: TRADE SURPLUS AND DEFICIT

Question 1: What does "bottom line" in the first paraghaph refer to?
→ “Bottom line” is understood as the profit of the money that a business make profit
or make a loss.

Question 2: What does the current account tell us?

→ The current account tells us which countries have been profitable traders, running
a current account surplus with money in the bank at the end of the year, and which
countries have been unprofitable traders, having imported more than they’ve
exported, running a current account deficit, or spending more than they’ve earned.
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SUMMARY
1. The merchandise trade balance:
- The merchandise trade balance looks only at visible goods.
- Trade in visible goods includes only those tangible goods that can actually be
loaded on a ship, airplane, or whatever means of transport to move goods from
one country to another.

2. The current account:

- It includes a country’s exports and imports of services , in addition to its visible
trade.
- Countries have been profitable traders, running a current account surplus with
money in the bank at the end of the year .
- Countries have been unprofitable traders, having imported more than they’ve
exported, running a current account deficit, or spending more than they’ve earned.
- All of these payments and transfers of funds are added up in a country’s capital
account.

3. Balance of payments
- It includes not only payments abroad but also the goods, services, and all
transfers of funds that cross international borders.
- The balance of payments adds up everything in a country’s current account and
capital account
- The balance of payments should add up to zero at the end of accounting period.

* Trade deficits and surpluses are balanced by payments:

A country gain a current account surplus for :
- To invest overseas
- To reserve foreign currency
A country gain a current account decifit for :
- Look aboard for loans or investments
Be forced to dip into own reserves

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