Sources Of Finance Flashcards
What is an internal source of finance?
Means the business finds the money that it needs itself, for example through selling an assets or through using the profits that it has.
What is retained profit?
It is reused to reinvest the business
What don’t you have to pay using internal sources?
Interest
What is the main disadvantage of using internal sources?
One you have used it, it’s fine until you make more profit
What is external sources of finance?
When the business will need to borrow the money to expand. This includes loans, shares and even floating shares on the stock market
What are loans?
Money that is borrowed and available almost instantly. It will have to be paid back with interest
What’s a share capital?
Selling shares means that you have to share even more of your profits. However, there is no interest to pay so it can be cheaper to loan
What is floating on the stock market?
When an ltd business may decide it needs more money to expand and will become a public limited company.
This means it can “float” the shares on the stock market
Shares can now be sold to the public, generating more capital to expand
