Sources of Finance

Keywords of the Sources of Finance, along with a definition, one advantage and one disadvantage.

Retained Profit
Ad: No interest to pay. Dis: Keeping more profits in the business reduces payments to owners. Profit kept in the business after the owners have taken their share of the profits.
1 of 6
Owner's Savings
Ad: Should be available to the firm quickly. Dis: Increases the risk taken by the owners. The owner can put more of their savings into their unincorporated business.
2 of 6
Sale of fixed assets
Ad: Makes better use of the capital tied up in the business. Dis: Takes some time to sell the assets and the amount raised is never certain until the asset is sold. Existing assets that could be sold are those items of value, no longer required.
3 of 6
Sell inventories
Ad: Reduces opportunity cost and storage cost of high inventory levels. Dis: Done carefully to avoid disappointing customers if not enough goods are in stock. To reduce stock.
4 of 6
Issue of Shares
Ad: Permanent source of capital which would not have to be repaid to shareholders. Dis: Dividends will be expected by shareholders. Selling shares to shareholders (external or internal) for a percentage of the business only possible for LTD.
5 of 6
Mortgage
Ad: Cost-effective way of borrowing finance from the bank. Dis: Interest, debt has to be repaid; bank could sell property if not repaid. Charging of property by a debtor to a creditor as security for a loan.
6 of 6

Other cards in this set

Card 2

Front

Owner's Savings

Back

Ad: Should be available to the firm quickly. Dis: Increases the risk taken by the owners. The owner can put more of their savings into their unincorporated business.

Card 3

Front

Sale of fixed assets

Back

Preview of the front of card 3

Card 4

Front

Sell inventories

Back

Preview of the front of card 4

Card 5

Front

Issue of Shares

Back

Preview of the front of card 5
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