2.1.1 Internal finance Flashcards
1
Q
What are the reasons for the need to raise finance?
3
A
- Start-up
- Growth
- Cash flow problem
2
Q
What are sources of internal finance?
3
A
- Owner’s capital (personal savings)
- Retained profit
- Sale of assets
3
Q
What is retained profit?
1
A
- After all costs are covered and dividends are paid to shareholders, profit left
4
Q
What are the pros of retained profit?
2
A
- Easy way to sooth cash flow problem
- Doesn’t dilute control
5
Q
What are the cons of retained profit?
2
A
- Shareholders may prefer dividends (if firm not earning sufficient ROCE)
- ^Profits = firm afford debt, creditors push for their money
6
Q
What are the cons of sale of assets?
2
A
- Incur tax
- >Value sold, need it gone fast
7
Q
What are the pros of owners capital?
2
A
- Retain ownership
- ^Ctrl over personal funds
8
Q
What are the cons of owners capital?
2
A
- Strain family life (>disposable income)
- Failure = personal assets liable
9
Q
What are the pros of sale of assets?
2
A
- Quick money
- Rapid disposal of assets (lower costs)
