Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Finance > Week 5- Sources Of Finance > Flashcards

Week 5- Sources Of Finance Flashcards

1
Q

Why do businesses need finance?

A 
For starting up
Everyday bill payments (working capital)
Take over bid
Replace machinery/equipment 
Internal growth
Expansion
Unforeseen events
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why should a business be careful on where it should chose its finance?

A

Difference sources of finance have different implications for business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is internal sources of finance?

A

Finance which is raised internally, it does not increase the debts of the business. Examples are: retained profit, personal savings, sales of unwanted assets, sale and leaseback

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What us external sources of finance?

A

Finance provided by people or institutions outside the business, creates a debt that will require payment. Examples are, loans, overdraft, shares, debentures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How long is short term finance considered to be?

A

Up to 3 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How long is medium term finance considered to be?

A

3-10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How long is long term finance considered to be?

A

Over 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are sources of short term finance

A

Overdraft
Short-term loads
Hire Purchase (external)
Trade credit (internal)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the advantages of overdrafts?

A

Very quick to arrange
Only pay interest on amount overdrawn
A good short term solution to a cash flow problem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the disadvantages of overdrafts?

A

Only suitable for a mallet amounts
Has to be repaid within a short amount of time
Interest or charges are paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the advantages of short term loans?

A

Easy and quick to set up
Small or large amounts of money can be borrowed
Structured repayment term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the disadvantages of short term loans?

A

Interest payable

If repayments cannot be kept up, the business risks getting a poor credit rating o being made bankrupt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the advantages to hire purchase?

A

Large sums of money does not have to be found at once
Spread payment over a period of time
Improve cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the disadvantages to hire purchase?

A

High interest is often charged

Item doesn’t belong to the business until the end of the teem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the meaning of trade credit?

A

Items that are brought on from suppliers on a “buy now pay later” basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the purpose of medium-term finance?

A

To replace expensive equipment
To expand
Convert persistent overdraft into formal medium-term loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are sources of medium term finance?

A

Medium term loans
Hire purchase
Leasing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does the rate of interest depend on?

A

How much is borrowed
How long the money if wanted for
The security that is provided

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the two different types of rates when it comes to loans?

A

Variable rate

Fixed rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does variable rate mean?

A

Interest varies with whatever decisions the Bank of England makes with regards to interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What does fixed rate mean?

A

Interest is fixed for the duration of the loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the advantage of fixed rate?

A

Know what repayment costs are going to be

Financial planning is easier

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the disadvantage of fixed rate?

A

If the rate falls still have to pay the higher fixed rate

24
Q

What is the advantage of variable rate?

A

If the rate falls business pays the new lower rate

25
What is the disadvantage of variable rate?
Don’t now what repayment costs are going to be | Financial planning is more difficult
26
What is leasing?
When you pay instalments over a set period of time to rent an item. However, they never actually own them
27
What are the sources of long-term finance?
Long -term loans Issues of shares Sales and leaseback Retained profit
28
What is different about a loan term loan?
Used for expensive pieces of machinery Loans for buildings Variable rate or fixed rate (the fixed rate isn’t fixed foe the whole length of the loan)
29
What are issue of shares?
A share in the business is sold to an individual or another business. Also know as equity finance. This money then used to purchase new assets
30
What are the types of markets for shares?
``` Private company (Ltd) Public complaint (Plc) ```
31
What is the difference between (Ltd) and (Plc)
Ltd restrictions on the transfer of shares and value not readily available as they are not traded Plc are shares traded on the stock market
32
What are the advantages of issues of shares
No need to repay the money invested Cheaper than a loan Some businesses can raise large sums of money this way
33
What are the disadvantages of issues of shares?
Need to pay the shareholders a share of future profits Original owners may lose control of the business Risky for the shareholder- the investment may be lost if the business fails.
34
What are the advantages of leaseback?
Large sum of money is created Business can operate as normal after the sales Leasing company is responsible for maintenance of item
35
What are the disadvantages of leaseback?
High interest is often charged Item doesn’t belong to the business anymore No guarantees that lease will be renewed
36
What is retained profit?
Profit retained for the purpose of using in the future
37
What are the advantages of retained profit?
No need to pay interest on the money
38
What are the disadvantages of retained profit?
Could have been invested elsewhere, earning a higher profit The business may not have enough retained profit to meet its needs Shareholders may become unhappy if this means lower dividend payments
39
What are all the short term external sources of finance?
Overdraft Short-term loan Hire purchase
40
What are all the medium-term external sources of finance
Medium-term loans Hire purchase Leasing
41
What are all the long term external sources of finance?
Long-term loan Shares Debentures
42
What are all the short term internal sources of finance?
Trade credit
43
What are all the medium term internal sources of finance?
Retained profit
44
What are all the long term internal sources of finance?
Retained profit Sales of assets Sales and leaseback
45
What are the factors influencing the choice of finance?
``` Type of business Security Control Internal vs external Existing debt Cash flow Length of time ```
46
What is meant by limited liability?
This means that, should the company be wound up, shareholders stand to lose only the amount they have invested in the business (this assumes that their shares have been fully paid for.
47
What is a private company?
A private company is restricted from issuing it shares to the general public
48
What is a public company?
Q public company can offer offer its shares for sale to the general public
49
What are directors?
These are employees elected by the shareholder to tun the company. Ltd’s must have at least one.
50
What are ordinary shares?
Ordinary shares entitle their owner to receive an ordinary dividend from the company. Ordinary shareholders are the owners of the company and are entitled to vote at general meetings, which gives them control over the business.
51
What are preference shares?
Shares that entitle their owners to receive dividends at a fixed rate before the ordinary dividend can be repaid. Preference shareholders are not generally entitled to vote at general meetings
52
What is meant by the nominal value?
The nominal value of shares represents their face value and is nearly always the amount at which the shares are issues when the company is formed
53
What is a dividend?
A dividend is a payment made to the compass shareholders to reward them for investing
54
What is a stock exchange?
This is the market where new capital can be raised and existing shares can be brought or sold.
55
What is venture capital?
This is long-term funding, usually equity capital, provided to small and medium size businesses to enable them to grow.
56
What are debentures?
Debentures are long term plans raised by a okapi where security I’d usually provided for the loan.

Finance (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions