Пойгина Л.Б., Туринова Л.А. - English for Masters. Management Part 2 (1175657), страница 19
Текст из файла (страница 19)
Summarizing exercisea) Sum up the main points presented in Text 6. Write the plan of the text in the form ofstatements.b) Develop your plan into the summary.5. Discussing exercise The text states that the area of current liabilities is more important for short-term loan analysisthan for long-term analysis. Explain why and discuss the problem of short-term loan analysis.49Discuss the problem о a mismatch of financing (short-term financing for a long-term need). Whatare the advantages of a credit line?Explain why comparing the current maturities of long-term debt for a whole year to those shorteraccounts may be misleading with regard to the liquidity problems of the firm.6.
Translation exerciseTranslate from Russian into English. Try to use the following word-combinations:quasi net worth; to fall on the right-hand side of the balance sheet; to be not clearly debt or equity; the issueof committed annual payments and repayment dates; GAAP; to set up equity accounts; to be segregated fromnet worth; foreign subsidiary currency revaluation reserves; complexity of the company's operations; to beowed to some other entity; quasi net worth accounts; to interfere with the firm's debt repayment capacity; tobe spread as debt; to be debt in the strict sense; to be considered equity; to have a significant impact on ratios.Квази чистая стоимостьКвази чистая стоимость включает счета, которые лежат на правой стороне балансового отчета,но не ясно, являются ли они долгом или собственными капиталами, потому что вопрос обязательныхежегодных платежей и дат выплаты трудно определить.
В некоторых случаях GAAP предусмотренысчета собственных капиталов, отделенные от чистой стоимости для определенных целей, подобнорезервам иностранных отделений для переоценки валюты. Часто, эти счета созданы, чтобы сообщитьчитателю относительно сложности операций компании, не давая понять, что фонды заимствованы унекоторого другого юридического лица.Аналитик должен тщательно исследовать счета этой квази чистой стоимости, чтобы независимоопределить могут ли они влиять на способность фирмы выплачивать долги.
Если они влияют, то этисчета должны быть занесены в таблицу как долг, даже при том, что они не могут быть долгом встрогом смысле. Аналогично, если эти счета не влияют, то они должны рассматриваться каксобственные капиталы. Это может иметь существенное воздействие на коэффициенты, включающиечистую стоимость.Text 71. Skimming Skim through text 7 and identify which logical part deals with each of the followingsubtitles:a)b)c)d)e)Subordinated DebtReservesConcept of Long-term LiabilitiesContingentLong-term Debt Covenants an SecurityLong-term LiabilitiesI ____________________________Long-term debt represents liabilities with maturities in excess of 12 months, h is usually used to financeland, buildings, and equipment and occasionally to allow permanent increases in inventory levels andaccounts receivable.
Purchasing another company or buying back a firm's stock off the market may also befinanced with long-term debt.Previous distinctions between long-term debt (with maturities over live years) and intermediate-term debt(with maturities of more than one year but less than live years) are combined on the balance sheet.50Distinguishing between them is less valuable today because the variety of long-term amortization termsavailable makes the detailed study of these terms, while a more-complex process, more indicative of debtcapacity than merely determining the final maturity date. For example, traditional long-term debt did notamortize over its term; today this debt would be called a bullet loan because it comes due all at once. Manypublicly issued bonds are structured in this fashion. Naturally, the strong firm that arranges such debt willrefinance it a couple of years before its maturity.
The analytical problem is that the strength of the firm or ofthe market may not permit such a refinancing and bring on a catastrophic crisis.Except for the top-rated public firms, some amortization — repayment of a portion of the debt beforematurity — of long-term debt principal over the course of its maturity is almost always required.
Thisamortization schedule is of prime analytical importance. The analyst should prepare an independent scheduleof the principal repayments required by the reported debt. The resulting schedule should confirm that therepayments are within the company's normal net cash flow expectations.
If they are not within cash flowexpectations in any future years (frequently the amortization requirements are shown only for five years intothe future), discussions about refinancing should begin immediately.Repayment of longer-term liabilities normally comes from net cash flow and not just from the conversionof current assets to cash.
Therefore, a company's long-term debt burden must be analyzed in relation to futurenet cash flow. Again, debt analysis should cover the terms, purpose, interest rate, and security pledged for alloutstanding loans.II ________________________When a business incurs long-term debt, it usually enters into a loan agreement, which an analyst shouldobtain. It will detail such provisions as terms and conditions of repayment, including default provisions. Theanalyst must determine whether other creditors have restricted the company from incurring the proposed debtor placed other restrictions on the firm, such as meeting certain ratio requirements.
If the firm is near any ofthe limits stated in the loan agreement — in the covenants - then negotiations with that lending institutionshould begin with the object of obtaining a waiver of this restriction. Alternatively, the company may offer aplan to allow it to properly maintain its required ratios.The balance sheet or loan agreement may also distinguish between secured and unsecured debt. A securedloan is one against which an asset has been pledged in case of default on the loan. If the current lendinginstitution is not the party secured, efforts may be made to join the other lending institution in a joint securityagreement.
Otherwise, the asset's pledged status should be noted on the spreadsheet.Occasionally, the borrower may sign a lending agreement covenant which stipulates that it will not pledgeits assets to any other party. This is called a negative pledge. Falling short of actually pledging collateral, thistechnique gives the borrower greater freedom in disposing of or selling the asset without requiring individualreleases from the lender. The lender is protected because, assuming the covenant is properly recorded underthe Uniform Commercial Code, no other lender can presume to lake a lien on anything that it does notdirectly finance. Indeed, if another lender does not file on directly financed assets withinContingent liabilities can pose a significant threat to the viability of a company's operation. A primeexample of contingent liabilities causing problems is the potentially ruinous asbestos liability faced by JohnsManville Corporation.
After the company filed for protection under the bankruptcy statutes, its shareholderslost their investment in favor of plaintiffs in asbestos legal suits. The fact that the creditors were relativelyprotected by this bankruptcy agreement demonstrates that senior creditors have an advantage.Another category of contingent liabilities includes contracts undertakings, such as guarantees, contractualcommitments, and letters of credit. In the ordinary course of business, these are frequently referred to asexecutory agreements or contracts.
(Operating lease agreements are a special case of this type of contract andwere discussed above.) It is clear that these legal commitments can bankrupt a firm; here are some examples:♦ For a construction firm, legal commitments could arise from a simple error in estimating costs on a particular job.♦ For an importer, the signing of a letter of credit to import materials commits payment whether theproducts shipped were the correct ones, were salable, or were otherwise usable.♦ To enable a supplier to obtain credit,large purchasers occasionally guarantee the obligations of the smaller supplier to assist the latter toobtain needed working capital.
![](https://s.studizba.com/z.php?f=/templates/si/i/noavatar.png&w=100&h=100&t=1"){kind=avatar}
