2.1.1 Internal and External Finance

    Cards (243)

    • What is internal finance?
      Funds from company operations
    • Internal finance includes funds generated from within a company's own operations
    • Retained earnings are profits saved from past years.
    • One source of internal finance is the sale of underutilised or surplus assets
    • What does reduced working capital involve?
      Efficient inventory and cash flow
    • Match the source of internal finance with its definition:
      Retained Earnings ↔️ Profits saved from past years
      Sale of Assets ↔️ Selling surplus assets
      Reduced Working Capital ↔️ Efficient inventory management
    • Retained earnings do not require interest payments.
    • What is a disadvantage of the sale of assets as a source of finance?
      Loss of asset use
    • Reduced working capital can free up cash but may impact operational efficiency
    • What is external finance?
      Funds from outside the company
    • Match the source of external finance with its definition:
      Bank Loans ↔️ Repayable loans with interest
      Share Capital ↔️ Equity sold to investors
      Trade Credit ↔️ Delayed payments to suppliers
      Debentures ↔️ Long-term debt with fixed interest
    • Bank loans require collateral and may have high interest rates.
    • An overdraft is a type of short-term borrowing from a bank
    • What is a disadvantage of share capital as a source of finance?
      Dilutes ownership
    • Trade credit can improve cash flow without requiring immediate payment.
    • Debentures have lower interest rates compared to bank loans
    • Order the three main sources of internal finance:
      1️⃣ Retained Earnings
      2️⃣ Sale of Assets
      3️⃣ Reduced Working Capital
    • What is the definition of retained earnings in internal finance?
      Profits saved from past years
    • The sale of assets provides immediate cash inflow but reduces future asset use.
    • How does reduced working capital contribute to internal finance?
      Frees up cash
    • Retained earnings are readily available but may reduce dividends
    • Selling assets results in the loss of their use.
    • What is a potential disadvantage of reduced working capital?
      Disrupt operational efficiency
    • What does Internal Finance refer to?
      Funds generated from within
    • Retained Earnings are profits saved from past years
    • The sale of assets provides an immediate cash inflow for a company.
    • What is reduced working capital achieved through?
      Efficient cash flow management
    • Match the source of internal finance with its definition:
      Retained Earnings ↔️ Profits saved from past years
      Sale of Assets ↔️ Selling underutilised assets
      Reduced Working Capital ↔️ Efficient cash flow management
    • Retained earnings have the advantage of no interest payments
    • What is a disadvantage of selling assets for immediate cash inflow?
      Loss of asset use
    • Reduced working capital may impact operational efficiency.
    • Why is internal finance beneficial for a company?
      Avoids reliance on external funding
    • External Finance involves obtaining funds from outside
    • What is a bank loan defined as in external finance?
      Repayable loan with interest
    • Overdrafts are a form of short-term borrowing from a bank.
    • What is share capital in external finance?
      Equity sold to investors
    • Venture capital firms provide funding in exchange for a significant ownership stake
    • Leasing allows a company to use assets without outright ownership.
    • What is trade credit in external finance?
      Delayed payments to suppliers
    • Debentures are long-term debt instruments with fixed interest rates