Section D Flashcards
What do businesses need finance for?
Starting up, everyday running of the business, expansion, internal growth, take overs, equipment/machinery
What are the four sources of finance?
Short term, long term, internal, and external
Define short term finance
Paid back within one year
Define long term finance
Paid back over a period of time greater than one year
How can a business internally finance its business?
Retained profit, net current assets, sale of assets
What are retained profits?
Another way of saying net income
List the 4 advantages of retained profits
No interest charge, available immediately, avoids debt, no loss of ownership
Name the 3 disadvantages of retained profits
Amount available may be limited, could cause shareholder dissatisfaction as dividend may be reduced, once used it cannot be used for other purposes
What are net current assets?
They are current assets minus current liabilities
List 2 advantages of net current assets
Quick way of raising money, encourages the business to manage its cash flow
List 3 disadvantages of net current assets
Short credit terms can ruin relationships with customers, holding less stock could impact availability, may have to set lower prices to sell through stock quicker
What is sale of assets?
A business can sell assets to get some extra cash
List 3 advantages of sale of assets
Good way of raising funds from assets no longer needed, no interest charged, reduced capital tied up in useless assets
List 5 external sources of finance
Crowd funding, loans, mortgages, venture capital, trade credit
What is crowd funding?
When a large number of people donate a small amount towards a project
