Internal Finance Flashcards
What is Internal Finance?
Internal Finance refers to the funds generated within a company for its operational and investment needs, without relying on external sources.
What is Capital Expenditure?
Spending on items to be used over and over again.
e.g. a company vehicle
What is Revenue Expenditure?
Payment for goods ad services to be consumed/used.
e.g. raw materials (including maintenance on buildings and machinery)
What is Owners Capital?
The owners own money that has been invested into the business.
(most likely to be used as start-up finance)
Advantages of Owners Capital.
-Nothing to repay
-Owners retain control
-No application procedures
Disadvantages of Owners Capital.
-Only limited amounts available
-threat to personal finances/family finances
What is Retained Profit?
Profit made by the business that is then reinvested back into it in order to fund future activities.
(most important source of finance for profitable businesses)
Advantages of Retained Profit.
-Cheap
-Very flexible
-Doesn’t dilute ownership
Disadvantages of Retained Profit.
-Danger of hoarding profit
-Shareholders may prefer to receive dividends from profits
What is sale of Assets?
The sale of items of value that are owned by the business.
(sold in order to gain an immediate injection of cash)
Advantages of Sale of Assets.
-Immediate injection of cash
-No interest to pay
Turns obsolete assets into cash
Disadvantages of Sale of Assets.
-May be expensive if the business has to lease the asset back in the long run
-Loss of asset and future value
Advantages of Internal Finance.
-Capital is available immediately
-Cheap (no interest)
-No need to repay and involve third parties
-Drives efficiency
Disadvantages of Internal Finance.
-Can be limited
-Inflexible compared to external sources (lots of choice)
-Opportunity cost
