Trade Credit and Sources of Finance

What is the main reason why public limited companies have a larger choice of sources of finance?

They pay less interest, hence less risk.

What is the general rule when selecting a source of finance?

The finance source should match the finance need.

How does an existing loan affect a business's ability to secure further financing?

It increases the perceived risk, making it harder to secure further financing.

What is the primary characteristic of cash as an asset?

It is liquid, meaning it can be immediately available to spend. Signup and view all the answers

What is the purpose of a cash-flow forecast?

To estimate future cash inflows and outflows. Signup and view all the answers

What type of delay in payments to suppliers is a form of short-term finance?

Trade Credit. Signup and view all the answers

What is the primary difference between internal and external sources of capital in a business?

Internal sources are obtained by the business itself, while external sources are obtained from outside the business. Signup and view all the answers

What is the main purpose of microfinance in developing countries, and how does it differ from traditional finance?

Microfinance provides smaller loans to poorer people to start their own businesses, and it differs from traditional finance in that it targets smaller, low-income entrepreneurs. Signup and view all the answers

How do short-term sources of capital differ from long-term sources, and what are some examples of each?

Short-term sources are repaid within a year, while long-term sources are repaid over a longer period. Examples of short-term sources include overdrafts and hire purchase, while long-term sources include issuing shares and owner's savings. Signup and view all the answers

What is the relationship between retained profits and shareholders' equity, and how does it impact capital employed?

Retained profits are a part of shareholders' equity, and they increase the capital employed by a business. Signup and view all the answers

How do current liabilities, such as overdrafts, differ from non-current liabilities, such as long-term bank loans, and what are the implications for working capital?

Current liabilities are repaid within a year, while non-current liabilities are repaid over a longer period. Current liabilities reduce working capital, while non-current liabilities do not. Signup and view all the answers

What is the formula to calculate Working Capital, and what does it represent in a business?

Working Capital = Current Assets - Current Liabilities. It represents the amount of money available to finance a company's day-to-day operations. Signup and view all the answers

What is the main difference between Current Liabilities and Non-Current Liabilities?

Current Liabilities are debts owed by a business for less than 1 year, whereas Non-Current Liabilities are debts owed by a business for more than 1 year. Signup and view all the answers

What is the formula to calculate Shareholders' Equity, and what does it represent in a business?

Shareholders' Equity = Total Assets - Total Liabilities. It represents the total amount of money invested in a business by the shareholders/owners. Signup and view all the answers

What is Capital Employed, and how is it calculated?

Capital Employed is the long-term capital invested in a business, and it is calculated as Capital Employed = Non-Current Assets + Total Equity. Signup and view all the answers

What is the relationship between Total Equity and Non-Current Liabilities?

Total Equity represents the amount of money invested in a business by the shareholders/owners, whereas Non-Current Liabilities represent the long-term debts owed by a business. Signup and view all the answers

How can a business use its balance sheet to analyze its performance?

A business can use its balance sheet to calculate ratios such as Working Capital and Capital Employed, and to analyze its liquidity and profitability. Signup and view all the answers

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