Internal Finance

Question 1

2 advantages of retained profit
(Money retained for reinvestment, not to owners or shareholders)

Answer 1

No interest
No loss of control/ownership

Question 2

2 disadvantages of retained profit
(Money retained for reinvestment, not to owners or shareholders)

Answer 2

Amount available may be limited
Reduces payments to shareholders which may cause dissatisfaction

Question 3

Give two examples of current assets

Answer 3

Inventory
Trade receivables

Question 4

Give two examples of current liabilities

Answer 4

Trade payables
Overdrafts

Question 5

2 advantages of net current assets
(Money which is immediately available to the business)

Answer 5

Quick way of raising money
Selling off inventory reduces the costs related to holding it such as storage

Question 6

1 disadvantage of net current assets

Answer 6

May have to accept a lower price for its inventory

Question 7

2 advantages of sale of assets
(Sale of vehicles, equipment)

Answer 7

No interest charges
Obsolete assets can be turned into cash

Question 8

2 disadvantages of sales of assets

Answer 8

Some assets may take time to sell
The amount received may not be a true reflection of the asset’s value