UNIT 8 FINANCE

Europes Enron Page 70 Adjectivitas and adverbs Page 72 Career skills : Revering to visuals Page 73 Dilemma : Counting the costs Page 74

The bottom line

Keynotes Huge losses experienced by investors and employees due to missmanagement and iregularities in financial reporting have led to a demand for stricter corporate governance. Independent auditors such as the SEC (Securities and Exchange Commision) in the US have been checking balance sheets, which show the overall performance of companies and income statements (AmE) or profit and loss accounts (BrE) which show the difference between total income and outgoings for a given period.

Preview The Profit and Loss Account (P&L) Study the incomplete P&L below. complete the document with the followingheadings. Use a dictionary to help you.

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Reseach and development costs Interest receivable

Costs of materials Turnover

Gross profit Dividend

Consolidated Profit and Loss _____________________________________________________________________ For the year ended Dec 31 in $m

____________________________________________________________________________

Forecast 1 Turnover (sales revenue) 700

Actual 704

Other earnings Gains on fixed assets and operations 2 Interst receivable on investsment 175 250 162 244

Costs of making goods 3 cost of materials and all manufacturing expenses (100) Salaries and personnel costs 4 Gross povit Other costs and expense Indirect costs or overheads 5 Research & development costs Loss on fixed assets Loss on foreign operations (25) (50) (25) (100) (22) d 75 (25) (88) (200) 825 a 70 b 190 c 840

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Marketing and distribution cost

(100)

e 123

Trading / operating Profit

525

f 507

Profit for sharefolders ( 6 Dividend )

95

g 50

Retained profit

430

h 422

Listening Now listen to a presentation of the actual results and complete the missing figures for gaps a-h 2Listen again and answer the following questions 1. Why was gross profit higher than expected? 2. Where did the company decide to have parts made? 3. Which budgets went over the forecast limits? 4. What is expected to happen to the marketing budget in future? 5. How much will shareholders receive per share? 6. What prediction does the speaker make about retained profit? Speaking If you were a potential shareholders would you feel confident in investing in this company? Why? / Why not? Listening 2 Creative accounting 1 Companies sometimes make the figures financial documents more attractive than they really are. They can do this by: 2 a. Inventing revenues from companies that dont exist b. Not including debts on the books of subsidiaries and acquisitions c. Hiding debts on the books of subsidiaries d. Overstating current profits by including possible future earnings

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Listen to two investors talk about what happened to them when they invested in two media companies. Which of the above methods were used to drive up share prices in each case? 2Listen again and complete the graphs NavTEch Stock price Euros () 1998-2001 60 50 40 30 20 10 0 1999 2000 2001 2002

1998

Com. TV Stock price Euros () 1999-2003 140 120 80 60 20 0 2000 2001 2002 2003

1999

Speaking

Can you think of any other famous financial scandal?

Reading

Corporate governance 1 Read the text about corporate governance. What accounting irregularities are mentioned? Who was responsible? Corporate governance Europes Enron The Ahold financial scandal should shock Europe into accounting and corporate governance reform, just as the Enron scandal did in the USA. It may seen an exaggeration to describe that scandal overwhelming Royal Ahold as Europes Enron but in many ways it is true enough. Certainly, the worlds third-biggest food retailer, after Wal-Mart and Carrefour, presents none of the financial risks of Enron, which was both deeply in debt and the worlds largest electricity giant. That apart, the similarities between

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the former Texan powerhouse and the Dutch retailer are striking, from the very bad corporate governance, aggressive earnings management and accounting irregularities to auditor whose role must be called into question. Now, at least, Europeans should stop believing that corporate wrong-doing is a US problem that cannot occur in the old continent. Instead, they should fix their own corporate governance and accounting problems. On 24 February 2003 Ahold announced the resignation of its chief executive and finance director after finding that it had overstated its profits by more than 463m ($500m). Its market value plunged by 63 per cent that day, to 3.3bn. in late 2001, it exceeded 30bn. Ahold is now under investigation by various authorities, including the Securities and Exchange Commission (SEC) in the USA. Rather like Kenneth Lay at Enron, and Dennis Kozlowski at Tyco, another scandal-hit US firm, Aholds now-departing boss, Cees van der Hoeven, won a huge reputation from turning a dull company into growth machine. Investors applauded long after they should have started asking hard questions. When eventually they did ask them, his anger and pride became quickly apparent and he refused to answer. The 463m overstatement is due primarily to Aholds US Foodservice unit, which supplies food to schools, hospitals and restaurants, although there are also issues over its Disco subsidiary in Argentina and several others units. This has led some observers to say that this less a European problem than yet another US accounting failure. Such a claim absolves Aholds bosses of responsibility for their acquisitions and dishonesty and ignores the persistent, firmwide tendency to test the limits of acceptable accounting. Most firms that buy in bulk- including such admired retailers as Wal-mart and Tesco get discount from suppliers if they meet sales targets. The issue is how those rebates are accounted for. The accepted practice is to wait until the targets are met. Failing firms, such as now bankrupt Kmart, food distributor Fleming, and now Ahold appear to have booked there rebate payments before they were earned. What of Aholds auditor? Although the problems were uncovered, it should have done so much earlier, says Lynn Turner, a former chief accountant at the SEC. 2Read the text again and answer the following questions. 1.What are the similarities between Enron and Ahold? 2.What should European companies do? 3.Why did the shareholders admire Cees van der Hoeven? 4.Which of Aholds acquisitions is mentioned in the text? 5.What did Europeans believe about corporate wrong-doing in the past? 6.How did Foodservice overstate its sales?

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Speaking Do you think CEOs who falsify accounts are criminals and should go to the jail or it is an acceptable risk to falsify accounts if it helps to safeguard the companys future and jobs? Vocabulary Choose the best words to fill each gap in the sentences below 1. Sales are the good way for _________to get rid of surplus stock a. Retailers b. sellers c. dealers d. wholesalers

2. The company was in fact seriously __________ even though they claimed to be making profit. a. At a loss b. in debt c. in the black d. broken

3. Some companies __________ their earnings to drive up shares prices. a. Overdo b. overflow c. overstate d. oversee

4. The Financial Service Authority was set up in the UK to deal with __________ such as fraud and insider trading. a. Issues b. ideas c. reasons d. purposes

5. When the CEO should have been cost cutting, he was pending huge sums on __________ that turned out to be unprofitable. a. Increases b .investors c. growth d. acquisition

6. When you buy in bulk you can obtain __________ or rebates. a. Discounts b. sales c .decreases d. interest

7. Shareholders lost money when the company declared itself __________ a. Redundantb. sold out c. broken down d. bankrupt

8. When they heard about our financial difficulties our __________ asked to be paid in advance. a. Service b. deliveries c. suppliers d. orders

9. They didnt lie they simply tried to _________ the truth. a. Conceal b. prevent c. reduce d. warn

Language check Adjective and adverbs Look at the following uses of adjectives. -before nouns

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There was a dramatic fall in profits last year. -after stative verbs such as be, become, seem, appear, look, etc. The similarities between Ahold and Enron are striking. Look at the following uses of adverbs. -after verbs Shares fell sharply on the news. -before an adjectives] or adveb his anger and pride became quickly apparent Practice 1Use the following expressions to describe the performance of the Enrone share price 1991-2001 Fluctuated mildly a sharp increase reached a peak Rose steadily dropped slightly a dramatic and sudden fall

4 1 2 3 6

100 90 80 70 60 50 40 30 20 10

1 91 921 931 4195 196 197 198 920 02 1

2 Journalist use dramatic verbs that describe the direction, speed and degree of chage. What information do these verbs give? direction speed large/small degree Pluge Very fast Very large Dip Fast small Soar Plummet Slide Skyrocket Jump Nosedive Decline Career skills

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Referring to Visual Visual aids such as graphs,barchat,pie chart and flow chart are an important and effective way of structuring and communicating presentation that include a lot of statistics.The following phrases are useful for drawing the listeners attention to particular details. As you can see,... ...led to the...you see here... Youll notice that,... ...is obvious on this part of the graph here This parh of the graph clearly shows... This slide shows the... Listening 3 1 Look at the graph showing the performance of the World Com share price 19922002 and match the changes with the time periods. Then listen and check your answerd. 1. reached a record high 2.nosedived to an all-time low 3. continued to skyrocket 4. started a spectacular ascension 5. there was a downturn a. 1992-95 b. 1995-98 c. 1998-99 d. 1999 e. 1999-02

2 Work in pairs.Student A turn to page 139.Student B look at the bar chart showing the American sales of the Italian food giant Parmalat,which went bankrupt in 2003 with debt of 14bn.Describe the chart to your partner.Then listen t your partner nd complete the European sales 1996-2003

Formal and Informal presentation Some cultural expect presectation to be formal and technical.Other find this dull and ineffective and prefer a more entertaining style of and use of visual aids in presentation in different countries? Parmalat operating result Turnovel ( million) 1996-2003

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WordCom Share price (US$), 1992-2002

Dilemma and Decision Dilemma: Counting the costs Brief MultiBrands is a globally successful consumer products company.which has built up a reputation based on Honesty,Quality and Innovation .Since it started operating ten yarsgo,it has launched at least two new,high quality products in diferent markets every year.However,managers are currently reviewing company policy because of a recent dramatic fall in profits and share price performance.

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Shareholders believe that this is due to over-diversification,rising cost failing consumer confidence as a result of complaints that product quality is declining. Shareholders recommendations are: Task 1 In groups,study the information on page 140 abd discuss where budget cuts and reallocations could be made in order to achieve a 15 per cent reduction in total operating cost.Consider all the above sharehlders recommendations before making a final decision. As you can see,.. ...clearly shows,... Youll notivethat,... ...led to the...you see here Task 2 Draw new visual aids to illustrate the changes and cuts you have made to the various departmental budgets. Task 3 Present your budget proposal using the new visual aids. Write it up Summarise your proposal in a short report.Include graphs and charts to help illustrate and support your ideas.(See style guide,page 26 Freeze current policy of developing new products Concentrate on consolidating current successful brands Improve quality or reduce prices Freeze recruitment but avoid layoffs Reduce current budget by 15 percent

ADDITIONAL NOTES

VOCABULARY UNIT 8 INTELLIGENT BUSINESS >> NOVEMBER 2011 BY: YUDI ANJANGSANA, DRS. SE. MM. TRISAKTI SCHOOL OF MANAGEMENT JAKARTA
NO. WORDS / Expressions huge loss bottom
Part of Speech

MEANING besar; kerugian; kehilangan; dasar; bagianbawah

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1 2 3

adjective noun noun

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4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

line experience experience due to due to employee employ employment employer employed mismanagement irregularity financial reporting led to led to demand demand stricter strict corporate governance independent auditor such as security exchange exchange commission balance sheet

noun noun verb adverb padanan kata noun verb noun noun adjective noun noun noun verb verb noun verb adjective adjective noun noun adjective noun adverb noun noun verb noun noun

garis; baris; pengalaman; hal yang kitaalami mengalami; disebabkanoleh; dikarenakanoleh because of; owing to; on account of; pegawai; karyawan mempekerjakan; mengkaryakan pemberiankerja; pemekerjaan majikan; perusahaan di manakitabekerja dipekejakan; yang diperkerjakan salahurus; salahpengaturan ketidakwajaran; ketidakbiasaan pelaporankeuangan bentukke 2 danke 3 dari Lead to mengarahpada; menujupada pemintaan; tuntutan; sesuatuygdiminta meminta; menuntut; memerlukan lebihketat ketat; erat; perusahaan pengurusan; pengaturan; pengorganisasian bebas; lepas; merdeka; berdirisendiri peneliti; seperti; semacam; misalnya saham pertukaran; pergantian menukar; mengganti; lembaga; institusi neracalajur

67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67 67

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33 34 35 36 37 38 39 40

show overall performance income statement profit and loss accounts total income outgoings given period

verb adverb noun noun noun noun noun noun

memperlihatkan; menunjukkan; keseluruhan; segenap; seluruh kinerja laporanpenerimaanlabarugi laporanpenerimaanlabarugi pendapatankeseluruhan pengeluaran periodetertentu

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GOOD LUCK

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