schedule E Flashcards
(30 cards)
financial objectives (6 points)
- revenue objectives
- cost objectives
- profit objectives
- cash flow objectives
- capital expenditure objectives
- capital structure objectives
internal factors affecting financial objectives (4 points)
- functional objectives e.g. new leadership
- characteristics of the firm
- focuses of the owners and directors
- public or private sector
external factors affecting financial objectives (3 points)
- competition
- number of consumers
- economic environment
sources of finance: retained profit
profit kept by a business to finance future events
advantages of retained profit (2 points)
- avoids interest payments
- doesn’t dilute the business ownership
disadvantages of using retained profit as a source of finance (3 points)
- only an option if sufficient retained profit exists in the business
- may make shareholders unhappy if it means no dividends
- opportunity cost with that money
sources of finance: overdraft
the facility to overspend on an account up to an agreed sum
advantages of an overdraft (2 points)
- only borrowed when required allowing flexibility
- quick and easy to arrange
disadvantages of an overdraft (3 points)
- bank can call it in at any time
- interest payments
- bank can seize the business assets to get money back
sources of finance: loans (3 points)
- bank loan: sum borrowed from the bank
- mortgage: a long term loan used ot purchase property
- debenture: fixed loan, no repay date
advantages of loans (5 points)
- quick and easy to secure
- if the loan has a fixed interest rate it allows firms to budget
- improved cash flow
- business ownership not diluted
- some lenders provide additional support to help business succeed.
disadvantages of loans (3 points)
- interest must be paid regardless of financial performance
- a firm that is highly geared may seem high risk
- often more expensive than other sources of finance
sources of finance: venture capitalist
investment from an established business in return for a percentage equity in the business
advantages of venture capitalist (4 points)
- potential for large sums of money for investment
- expertise to help the business
- makes it easier to attract other sources of finance
- provides the required capital for expansion
disadvantages of venture capitalist (3 points)
- a long and complex process
- expert financial projections are likely to be required
- partial loss of ownership
sources of finance: share capital
finance raised from the sale of shares
advantages of share capital (3 points)
- only need to pay dividends if profit is being made
- possible to raise large amounts of finance
- no interest repayments
disadvantages of share capital (3 points)
- loss of ownership
- risk of hostile takeover
- complex and costly process of issuing shares, especially for PLC
sources of finance: debt factoring definition
selling the debts of the business to a financial institution, the business will receive the debt owed to them quicker but for a fee.
advantages of debt factoring (3 points)
- receives a large amount of debt immediately
- good source of short term finance to address cash flow problems.
- saves managers time
disadvantages of debt factoring (2 points)
- reduces profitability due to fee payed
- may damage reputation of firm as they appear in need of short term finance.
sources of finance: crowd funding
raising finance from a large number of people investing small amounts of money
advantages of crowd funding (3 points)
- can also act as advertising for a business
- relatively cheap
- may be able to raise a large amount depending on how attractive the business looks
disadvantages of crowd funding (3 points)
- may not raise as much as needed
- time has to be spent on creating info to attract funding
- may need to offer incentives to encourage contributions
