Internal Finance

Question 1

Examples of Internal Sources of Finance

Answer 1

• Sale of Assets
• Net Current Assets
• Retained Profits

Question 2

Sales of Assets

Answer 2

Vehicles, buildings, machinery or equipment can be sold to give the business cash.

Question 3

Net Current Assets

Answer 3

Shows the money available in the business to fund day-to-day expenditure

Question 4

Retained Profits

Answer 4

Some of the profits are kept in the business and not distributed to the owners or shareholders. The money is retained for reinvestment in the business

Question 5

Ad of Sales of Assets

Answer 5

• A good way of raising funds from assets that are not needed any longer
• No interest charges

Question 6

Dis of Sales of Assets

Answer 6

• It is unlikely that the amount received will be a true reflection of the assets value
• Can increase costs in the long run if the asset needs to be leased back

Question 7

Ad of Net Current Assets

Answer 7

• A quick way of raising money. Selling off inventory reduces the costs related to holding it
• Encourages the business to manage cash flow effectively

Question 8

Dis of Net Current Assets

Answer 8

• Lower stock holding can impact on the abilty of the business to meet customer demand
• May have to accept a lower price for its inventory

Question 9

Ad of Retained Profit

Answer 9

-Does not have to be repaid and no interest payable

Question 10

Dis of Retained Profit

Answer 10

• Not available to new businesses and many companies may not make sufficient profits
• Reduces payments to shareholders