As a firm sells its products or services, it receives money, which it uses to meet its expenses. One of these expenses, depreciation, represents the cost of replacing assets (like tools, machinery, and buildings) that wear out. Typically, business use internal funds to cover the cost of depreciation.

Business loans are generally classified as either short-term or long-term loans. For short-term loans, the principal  (the amount borrowed) must be repaired within one year. Long-term loans mature (come due) in more than a year.

Short-term loans are used to finance the everyday costs of doing business, such as payrolls, raw material and merchandise. Long-term loans are more likely to be used to purchase equipment, buildings and other high cost items.

All corporations issue common stock; some, however, also issue preferred stock. Unlike common stockholders, preferred stockholders usually do not have voting rights.

A security exchange is a market where brokers meet to buy and sell stock and bonds for their customers.

The largest of the securities exchanges  are the New York Stock Exchange and the American Stock Exchange.

There is some risk of default (failure to pay interest or principal) on the bonds of even the strongest corporations. For this reason many people invest in mutual funds . mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the security markets.

Two of the most important pieces of information contained in every prospectus and annual report are the balance sheet and theincome statement. The balance sheet summarizes a corporation’s assets, what it owns; its liabilities; what it owes; and its net worth, the difference between the two sums at a given time. The income statement summarizes a firm’s revenues, costs, and difference between the two (profit and loss) over a period of time.

Exercise 1. Give the English equivalents:

покрити вартість чого-небудь, пасив (балансу), балансовий звіт, довгострокова позика, невиплата, запозичена сума, фондова біржа, привілейовані акції, актив (балансу), внутрішні борги, мати право голосу.  

Exercise 2. Write an appropriate word-phrase into sentence:

“investors”, capital, money, net worth, customers, bonds, a security exchange, long-term   financing;

1.  … is the difference between assets and liabilities.

2.  Similarly, firms need … to begin operation, to meet their day-to-day expenses and to expand.