M2-Topic 2 part 1 internal and external sources of finance Flashcards
what are sources of finance
ways a business acquires funds in order to operate
what are different types of sources of finance are there(2)
external
internal
what are different external sources financed(2)
equity
debt
name a type of internal source of finance
retained profits
name types of external equity sources (2)
ordinary shares
private equity
what are the different types of external debt sources(2)
long term
short term
name types of short term debt sources(3)
overdraft
factoring
commercial bills
name types of long term debt (4)
mortgage
debentures
unsecured notes
leasing
what does internal sources of finance mean
they are funds generated inside the business
what are retained profits
retained earning that will be used for future expansion of a business
what is debt
finance that must be borrowed + must be repaid
what is equity
gaining finance through shares and investments from new owners, and share holders
what is an overdraft
when the business has permission from the bank to take out money into negatives to an agreed amount
what is factoring
the selling of accounts receivable to finance companies or factoring businesses for a discounted amount
what are commercial bills
short term loans issued in large amounts (1000+), for a period of up to 6 month, which is paid fully + interest at the end of the term
what is long term debt
borrowed funds for periods of 12 months or longer
what is mortgage
a loan to secure property,
what is lender allowed to do if a mortgage isn’t repaid
the lender has the right to reposes the building
what are unsecured notes
they notes sold by the company to raise money for expansion
what is the risk for a investors in buying unsecured notes
if the company goes bankrupt they have no security to get there investment money and interest back
what are debentures
financial contracts issued by a company, where the issuer promises to pays a fixed rate of interest, and pay back the amount borrowed at maturity
what happens if a debenture isn’t paid back fully
the investor has security and is able to repossess items from the business in order to get there money back
what is leasing
the payment of money for use of equipment that is owned by another party (cars, machinery,computers)
