Understanding Sources of Finance

What is retained profit and how is it used as a source of finance?

• Retained profit is the reinvested portion of net income used as a source of finance for business growth and development.

• Retained profit is the amount paid to shareholders as dividends.

• Retained profit is the total revenue generated by a business.

• Retained profit is a loan taken from financial institutions.

Name two internal sources of finance.

• Venture capital

• Retained earnings, Depreciation funds

• Government grants

• Bank loans

What are the characteristics of short-term finance?

• Long-term borrowing periods

• Lower interest rates

• Characteristics of short-term finance include quick access to funds, higher interest rates, a focus on liquidity, and a borrowing period of less than one year.

• Focus on asset acquisition

List three examples of external sources of finance.

• Credit cards

• Personal savings

• Government grants

• Bank loans, issuing shares, crowdfunding

How does crowdfunding work as a source of finance?

• Crowdfunding is a method of raising finance by collecting small amounts of money from a large number of people, usually through online platforms.

• Crowdfunding is a way to sell shares of a company to a few investors.

• Crowdfunding involves borrowing large sums from banks.

• Crowdfunding is a method of raising finance through government grants.

What is the difference between medium-term and long-term finance?

• Medium-term finance is for 1-5 years, while long-term finance is for over 5 years.

• Medium-term finance is for 6-10 years, while long-term finance is for 1-5 years.

• Medium-term finance is for 1 year, while long-term finance is for 1-10 years.

• Medium-term finance is for over 5 years, while long-term finance is for 1-5 years.

Explain the role of debentures in long-term financing.

• Debentures provide a means for companies to secure long-term financing without diluting ownership, while offering fixed interest payments that are tax-deductible.

• Debentures do not require interest payments and are considered free financing.

• Debentures are short-term loans that must be repaid within a year.

• Debentures are a type of equity financing that requires ownership dilution.

What are the advantages of using venture capital for a business?

• Loss of control over business decisions

• Advantages of using venture capital include access to funding, expertise, networking opportunities, increased credibility, and potential for rapid growth.

• Limited access to markets

• Increased debt obligations