Sources of Finance - Large Firms

Question 1

Name 6 sources of finance

Answer 1

Retained profit
Re-invested savings
Fixed assets
Shares
Debentures
Loans/mortgages

Question 2

Explain retained profit

Answer 2

Profit owners have saved and want to use in the business after paying themselves a dividend
But–
Larged business have to give larger dividends due to pressure from shareholders so have less retained profit

Question 3

Explain re-invested savings

Answer 3

Large/successful firms may have used retained profit to build up bank savings or to buy stocks
They can use this to get cash quickly if they need it

Question 4

Explain fixed assets

Answer 4

Firms can raise cash by selling fixed assets (for example - machinery or buildings) that they don’t need/use
However–
there is a limit to how many you can sell aas if you sell to many you can’t go on trading

Question 5

Explain shares

Answer 5

a limited company can sell more shares and the cash raised doesn’t have to be repaid to the shareholders
However–
the more shares sold the less control the existing owner has

Question 6

Explain debentures

Answer 6

limited companies can issue debentures to the public - loans with interest paid over up to 25 years
People who are issued with debentures don’t own the business they only lend it money

Question 7

Explain loans/mortgages

Answer 7

Larger businesses may still need bank loans or mortgages - repaid with interest
Easier to get for large firms

Question 8

Name 5 different reasons a certain source of finance is needed

Answer 8

Type of company
Amount of money needed
Length of time
Cost of the finance
State of the economy

Question 9

Page 53

Answer 9

Different situations need different sources of finance