Internal sources of finance Flashcards
What are the 3 main sources?
- Retained Profit
- Net Current Assets
- Sale of Assets.
What is Retained Profit?
State a pro and con.
Profit kept within a business from the previous year to help finance future activities.
Pros - Can be used as short-term source. Doesn’t dilute business ownership.
Cons - May cause shareholder dissatisfaction if this is at the extent of dividend payments.
What are Net Current Assets?
State two examples.
Items of value owned by a business that will be used and change in value within a year.
Example - Inventory, trade receivables, cash and cash equivalent.
What are Sale of Assets?
State a pro and con.
State two examples.
Sale of a long-term or fixed assets; stay in the business for more than a year. Assets can be sold in order to get an immediate injection of cash into a business and therefore provide finance.
Pros - No interest charges or repayments.
Cons - May be expensive in long run if need to lease asset back. Loss of use of the asset and future value. Is only a one-off option.
Example - Vehicles and machinery.
