New words:

1. Current assets – оборотные средства.

2. Fixed assets – основные средства.

3. Acquisition – приобретения, поступления.

4. Pursuit – преследование, погоня, поиски.

5. Goal – финиш, цель.

6. Proper – свойственный, присущий, подходящий, нужный.

7. Assessment – оценка, (for taxation) обложение.

8. Risk-return trade-off – компромисс (альтернатива) между риском и возвратом денежных средств.

9. Available – наличный, в наличии, в распоряжении.

10. Inventory – опись, инвентаризация, запас, резерв, мн. запасы, товарно-материальные запасы, оборотные фонды.

11. Debt-free – свободный от налогов.

12. Retain – удерживать (прибыль от распределения), сохранять (запасы).

Financial management is concerned with the acquisition, financing and management of assets in the pursuit of the company’s goal. The decision function of financial management can therefore be broken down into three major areas: investment, financing and asset management decision. Integral to each decision is the concept of a risk-return trade-off.

Profit has been defined as the reward resulting from the decision of bearing a risk. The greater the risk associated with any financial decision, the greater the return expected from it. Proper assessment and balance of various risk-return trade-offs available is part of creating a sound stockholder wealth maximisation plan.

Investment decision.

This is the most important of the firm’s three major decisions. It begins with the determination of the total amount of assets needed to be held by the firm. Even when this number is known, the composition of the assets must still be decided: how much of the firm total assets should be devoted to cash, to inventory or to fixed assets.

Finally, assets that can no longer be economically justified may need to be reduced, eliminated, or replaced.

Financing decision.

It is the second major decision of the firm.

If one looks at the mix of financing for firms across industries, he will see marked differences. Some firms have high relative amounts of debt, while others are almost debt- free. Does the type of financing employed make a difference? Is it possible to define the optimal financial structure of the firm?

In addition, dividend policy must be viewed as an integral part of the firm’s financing decision. Retaining a greater amount of current earnings in the firm means that the resource base of the firm will be strengthened. At the same time it means that fewer roubles will be available for current dividend payments.

Asset management decision - the third important decision of the firm.

The financial manager is charged with varying degrees of operating responsibility over existing assets. The financial manager’s responsibilities require that greater concern he placed with the management of current assets than with fixed assets.

Investment decisions have important financial implications, but they are more strategically oriented. As such the financial manager is only one of the parties involved in the decision process.

Current assets management instead falls under the direct responsibility of the financial manager.

Tasks

1. Quote the sentences in which these words and word combinations are used in the text: financial, assets, responsibility, manager, decision, debt- free, amount, resource, inventory;

2. Think of the questions and statements to which the following sentences are answers:

a. The decision function of financial management includes the investment, financing and asset management decision.

b. Profit has been defined as the reward resulting from the decision of bearing a risk.

c. Investment decision is the most important of the firm’s three major decisions.

d. Dividend policy must be viewed as an integral part of the firm’s financing decision.

e. Investment decisions are strategically oriented.

3. Give a summary of the text and discuss it.