internal finance Flashcards
why do firms need money
to get started
what are the 2 categories expensitre falls in to
capital expenditure and revenue expenditure
whats capital expenditure
spending on items that may be used over and over again
examplesof capital expenditures
company vehicle,cutting machine, new factory
whats revenue expenditure
refers to payments for goods and services that have either already been consumed or will be soon
examples of revenue expenditure
wages,raw materials and fuel
whats capital
the money provided by the owners in a business
what is internal finance
money generated by the business or current owners
what is owners savings
owners can use the capital they have saved up to either help set up the business or just help with cash flow or an expansion
what is retained profit
profit after tax that is put back into the business and not returned to the owner
why is retained profit so popular
their are no additional costs such as interest that comes with it
whats the opportunity cost of retained profit
it cant be returned to the owner so they have less money to fund their lifestyle
why would this be a problem in limited companies
could cause conflict between shareholders as dividend payments have been frozen as the profits have been used in the business
pro of retained profit
its flexible source of finance
doesnt have to be used immediately- can be built up
final source of internal finance
sale of assets
