Podcast
Questions and Answers
What is the primary purpose of internal sources of finance?
What is the primary purpose of internal sources of finance?
Which of the following is an example of an external source of finance?
Which of the following is an example of an external source of finance?
Why do businesses often seek external sources of finance?
Why do businesses often seek external sources of finance?
Which of the following is an example of an internal source of finance?
Which of the following is an example of an internal source of finance?
Signup and view all the answers
What is the primary advantage of external sources of finance for businesses?
What is the primary advantage of external sources of finance for businesses?
Signup and view all the answers
Why do businesses often prefer internal sources of finance over external sources?
Why do businesses often prefer internal sources of finance over external sources?
Signup and view all the answers
Study Notes
Internal Sources of Finance
- Primary purpose is to provide funding for business operations, expansions, and investments without incurring debt or dilution of ownership.
- Businesses can utilize profits retained in the company rather than distributing them as dividends to shareholders.
External Sources of Finance
- Examples include bank loans, credit facilities, venture capital, and issuing shares.
- Typically used to fund larger projects or cover short-term cash shortages.
Reasons for Seeking External Sources of Finance
- External funding can facilitate rapid growth and expansion, enabling businesses to take advantage of market opportunities.
- It allows for larger amounts of capital that might not be available through internal means.
Internal Sources of Finance Examples
- Retained earnings: profits that are reinvested into the business instead of being distributed to shareholders.
- Depreciation funds: funds set aside from profits to cover the cost of asset replacements.
Advantages of External Sources of Finance
- Provides access to larger amounts of capital needed for significant investments or expansion.
- Business can maintain and enhance its operational capabilities without having to rely solely on its own funds.
Preference for Internal Sources of Finance
- Internal sources often involve lower costs compared to external financing, which can incur interest and fees.
- Retaining control is easier, as there is no need to share ownership or decision-making power with external investors.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge of internal and external sources of finance with this quiz. Explore the primary purpose of internal sources of finance, examples of external sources, and the reasons why businesses often seek external sources of finance.
