D1 - Internal Sources of Business Finance

Question 1

Explain and evaluate retained profit as a source of finance.

Answer 1

It’s when the business makes a profit and has to decide whether to take that money out of the business as a salary or a dividend, or if they want to reinvest it back into the business.

+ Available immediately & no loss of ownership
- Amount available may be limited & shareholder dissatisfaction as dividend
payment would be reduced

Question 2

Explain and evaluate net current assets as a source of finance.

Answer 2

Net current assets are current assets
minus current liabilities.

If you have positive net current assets, it can be used by the business to fund day
to day expenses.

+ Quick way of raising money & encourages the business to manage its cash flow
- Less stock can impact the ability to meet customer demand & may have to set lower
prices to sell through stock quicker

Question 3

Explain and evaluate sale of assets as a source of finance.

Answer 3

It’s when a business sells assets that they have in order to receive a cash injection.

+ Good way of raising funds from assets no longer needed & no interest charged
- May not receive full value of the asset if a quick sale is needed & if the asset is needed then costs could increase to lease a similar asset back