Influences on Financial Management Flashcards
Internal Sources of Funds
From within the business
- Recorded under equity in balance sheets
Internal Funds Examples
Retained Profits, Sale of unwanted assets
Advantages of Internal Funds
No Change in ownership, no interest
Disadvantages of Internal Funds
Limited to what is avaliable
External Funds
Come from outside the business
Involves Short and Long term Debt and Equity
External Types of Funds
Short
- Overdraft, commerical bill, factoring
Long
- Mortgages, debenture, unsecured notes, leasing
Overdraft + Adv / Dis
Drawing money beyond account balance, can be used to assist for cash flow shortfalls
Adv
- Minimal cost, no regular repayment schedule (can pay back when able)
Dis
- High tax rate
Commerical Bill + Adv / Dis
Short term loans for larger amounts
Adv
- Receive funds instantly, flexible
Dis
- Loans used as collateral against assets until funds repaid
Factoring + Adv / Dis
Selling accounts receivable to firm for quick cash
Adv
- Immediate funds
Dis
- Not full amount, negative perception
Mortgage + Adv / Dis
Long term loans used to fund purchase of property
Adv
- Gain use to property with small, progressive payments
Dis
- Interest rates expensive, property reclaimed if debts unpaid
Debenture + Adv / Dis
Promise to repay a loan for a fixed rate
Adv
- Predictable, stable
Dis
- Lump sum must be repaid
Unsecured Notes + Adv / Dis
Notes issued by companies for funds
Adv
- No claim on assets
Dis
- High interest rates
Leasing + Adv / Dis
Lease non current assets for incremental payments
Adv
- Small payments rather than large capital outlay, can use spare funds for other areas of business
Dis
- Dont own asset
External Equity
Funds raised by inviting new owners into the business
Issuing funds through ASX -
Ordinary Shares
Private Equity
Ordinary Shares
Become part owners of a public company, receive dividends
- New issue
- Placement
- Rights Issue
- Share Purchase Plans
Private Equity
Selling shares in the business personally, raise capital to finance future expansion / investment
