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💷 (Sources Of Finance with Mr Hinds) > Sources of Finance (Advantages and Disadvantages) > Flashcards

Sources of Finance (Advantages and Disadvantages) Flashcards

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1
Q

What are the internal sources of finance

A

Retained Profit, Net Current Assets, Sale Of Assets

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2
Q

What are the external sources of finance

A

Owners Capital, Loans, Crowdfunding, Mortgages, Venture Capital, Share Capital

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3
Q

What is retained profit

A

Profit kept within the business from the year

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4
Q

Is retained profit a short term or long term source of finance

A

Short term

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5
Q

What are the advantages of retained profit

A

Avoids interest repayments.
Does not dilute business ownership.

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6
Q

What are the disadvantages of retained profit

A

Only viable of profit is within the business.
May cause the shareholders dissatisfaction if this is at the expense of dividends

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7
Q

What are net current assets

A

The sum of all assets which are not intended for use on a continuing basis in the firm’s business (12 months)

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8
Q

What are the advantages of net current assets

A

No interest payments or loss of ownership.

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9
Q

What are the disadvantages of net current assets

A

This may lower prof ability if discounts are lost from early payments

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10
Q

What is the equation for net current assets

A

Current Assets - Current Liabilities

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11
Q

What are current liabilities

A

Current liabilities are a company’s short-term financial obligations that are due within one year or within a normal operating cycle

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12
Q

What are trade receivables

A

The amount owed to the business by its customers following the sale of products

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13
Q

What are trade payables

A

The amount the business owes by their suppliers following the sale of products and raw materials

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14
Q

What is sale of assets

A

Referring to the sale of long term fixed assets

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15
Q

Is the sale of assets a short or long term source of finance

A

Short term

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16
Q

What are the advantages of sale of assets

A

No interest charges.

May be turning an obsolete asset in finance.

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17
Q

What are the disadvantages of sale of assets

A

The seller is subject to a double layer of taxation.
Transferring assets may be more complicated.
Agreements tied to certain assets may need to be renegotiated.

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18
Q

What is owners capital

A

This is the amount that the owner has invested into the business

19
Q

Is owners capital a long term or short term source of finance

A

Usually short term however may be long term to smaller businesses

20
Q

What are the advantages of owners capital

A

There are no interest payments needed for using owners capital.

Does not require borrowing money to fund.

The owner has full control over the finance applied.

21
Q

What are the disadvantages of owners capital

A

The income needed for the business may also be needed for personal use

May have some physiological effects applied.

Savings will be lost if the business does not peform

22
Q

What are loans

A

A loan is a sum of money that is borrowed from a lender, with the agreement to repay it plus interest, usually in installments, over a set period of time

23
Q

What are the different types of loans

A

Fixed, Variable, Secured, Personal

24
Q

What are the advantages of loans

A

Loans can help you spread the cost of a large purchase over a longer period of time, making it more affordable.

The interest and principal payments on debt can be deducted from your business income taxes.

You can spread out your loan payments over a longer period of time, making them more affordable each month.

25
Q

What are the disadvantages of loans

A

The applied interest payments may be hefty for the business to pay back.

Some lenders require collateral to be applied.

The sign-up are usually quite time consuming

26
Q

Are loans a short term or long term source of finance

A

Usually a long term of source of finance

27
Q

What is crowdfunding

A

the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet

28
Q

What are the advantages of crowdfunding

A

A fast way to raise finance with no upfront costs.

May cause increased brand exposure.

29
Q

What are the disadvantages of crowdfunding

A

Must have a reasonable cause in order to crowdfund.

Must build up considerable interest into the crowdfunding project.

30
Q

Is crowdfunding a short term or long term source of finance

A

Short term source of finance

31
Q

What is venture capital

A

Venture capital is money invested in a business, usually a start-up.

32
Q

When is venture capital usually used

A

It is typically provided by investors who expect to receive a high return on their investment. It is also used when a business is thought to have high potential for growth

33
Q

What are the advantages of venture capital

A

Aside from the financial backing, obtaining venture capital financing can provide a start-up or young business with a valuable source of guidance and consultation.

Venture capital allows connections to be created with esteemed businesses.

34
Q

What are the disadvantages of venture capital

A

The business owner may lose control due to investors wanting to be heavily involved.

35
Q

Is venture capital a short or long term source of finance

A

Long term source of finance

36
Q

What are mortgages

A

These are long term loans normally spanning around twenty five years which is secured against a certain asset. Interest is applied on the mortgage

37
Q

What are the advantages of mortgages

A

Large amounts of finance can be raised.

Paid over a prolonged period of time.

Ownership or control of the business is not lost.

38
Q

What are the disadvantages of mortgages

A

Interest is applied on the amount borrowed.

Interest rates can fluctuate.

Interest has to be made no matter if profit is made or not

39
Q

Is mortgages a long term or short term source of finance

A

Long term source of finance

40
Q

What is debt factoring

A

This is essentially selling the businesses debts to a third party in order to receive cash at a fast rate.

The factoring company pays a percentage and receives a right to collect the debts

41
Q

What are the advantages of debt factoring

A

Speeds up the cash flow of the business.

The factor company takes the risk of bad debt.

42
Q

What are the disadvantages of debt factoring

A

Only a certain of percentage of the amount owed to the initial company is given which reduces profits.

May give customers the wrong impression and may alienate them.

43
Q

When would debt factoring usually be used

A

Used when the business does not have the facilities or the time to chase up the debts.

Business may need income at a fast rate.

44
Q

Is debt factoring a short term or long term source of finance

A

Short term source of finance

💷 (Sources Of Finance with Mr Hinds) (6 decks)

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