3.1 Sources of finance

Question 1

Internal sources of finance

Answer 1

• getting funds from within the organisations

three main: personal funds, sale of assets, retained profit

Question 2

Retained profit

Answer 2

• internal
• refers to the money left after paying taxes to the government and dividends to shareholders
  + no interest
• used to purchase assets
• emergencies
  short+medium+long

Question 3

Sale of assets

Answer 3

• internal
• when the business sell their unused assets
• improve liquidity problem
  short term

Question 4

Share capital

Answer 4

• external & equity finance
  money raised through the issue of shares
  long term

Question 5

IPO

Answer 5

• initial public offering
• when a business converts its legal status to public limited company by selling shares on stock exchange for the first time
  short term

Question 6

Loan capital

Answer 6

• medium to long term
• obtained from commercial lenders such as banks
• interest can be fixed or variable
  medium + long term

Question 7

One example of loan capital

Answer 7

• mortgage
• thế chấp
• secured loan for the purchase of property
• if the borrower fails to repay then the lender can have the property

Question 8

External sources of finance

Answer 8

• finance obtained from out of the business

examples: equity finance, debt finance, financial aid, and other sources of finance

Question 9

Overdrafts

Answer 9

• allows a business to take more money out of its bank account than it originally have
• commonly used in minor cash flow problems
  short term

Question 10

Trade credit

Answer 10

a company will obtain goods and services from a supplier immediately, but pay for them at a later date

Question 11

Grants

Answer 11

• amount of money given by the government

short+medium+long

Question 12

Subsidies

Answer 12

• similar to grants, however the government do it mainly for extended benefits for society
  short+medium+long

Question 13

Debt factoring

Answer 13

• a financial service that specialises in the collection of debts
  seen as last option - ruins relationships

Question 14

Leasing

Answer 14

• a form of hiring whereby a contract is agreed between a leasing company (the lessor) and the customer (the lessee)
  short+medium+long term

Question 15

Capital expenditure

Answer 15

spending on a firm’s fixed assets
fixed asset is something a firm plans to keep for longer than a year
examples: purchases of lands, building and machines

Question 16

Revenue expenditure

Answer 16

day-to-day running costs of a firm
the cost a firm has to pay on a daily, weekly, or monthly basis
examples: paying suppliers, wages

Question 17

Personal funds

Answer 17

money invested by the owner of a company

Question 18

Business angels and venture capitalists

Answer 18

experienced investors looking for a fast-growing companies –> potentially make them a profitable return

Question 19

Differences between venture capitalists and business angels

Answer 19

business angels - private individuals who risk their money

venture capitalists - companies that use the money from their clients to fund investment

Question 20

Subsidies

Answer 20

designed to increase production of goods that are deemed beneficial to society
usually provided by governments

Question 21

Grants

Answer 21

similar to loan, but no interest

Question 22

Short-term finance

Answer 22

those are repaid with 12 months

normally used to solve cash flow problems or to pay for revenue expenditure

Question 23

Long-term finance

Answer 23

used for longer than five years

all forms of equity finance are considered in this category