Y8 Business Studies - C8 Financing Business Activities

What is the main reason why businesses need finance?

• To reduce the quality of products

• To decrease the revenue

• To pay for their costs or day to day expenses

• To increase the number of employees

What is the finance required to start up a business called?

• Start-up capital

• Revenue generation

• Operating expenses

• Profit margin

What is the advantage of retained profit as a source of internal financing?

• Does not need to be repaid

• Quick to obtain

• No interest paid

• Unlimited amount available

What is the disadvantage of selling debentures as a source of external financing?

• Dividends must be paid

• Ownership of the company could change hands

• No interest paid

• Must be repaid with interest

What is the advantage of overdraft as a source of short-term financing?

• Long approval process

• Flexible

• High interest rates

• Must be repaid immediately

What is the disadvantage of leasing as a source of medium-term financing?

• Quick to get the loan

• Total leasing cost might be higher than purchasing the asset

• No interest paid

• Variable length of time

What is the advantage of issuing shares as a source of long-term financing?

• No dividends to be paid

• Ownership of the company could change hands

• Must be repaid with interest

• A source of capital that does not need to be repaid

What factor should be considered when choosing the type of financing based on the amount needed?

• Quick approval process

• Huge amount of financing usually gained by issuing of share, bank loan and debentures

• No interest paid

• Flexible financing options

What information is required by banks before lending to a business?

• Profit margin, operating expenses, and revenue expenditure

• Current assets, fixed assets, and revenue generation

• Number of employees, location of the business, and machinery required

• Trading records, forecasts, cash flow, and experience of the people running the business

What will shareholders consider before investing in a company?

• Profit margin, operating expenses, and revenue expenditure

• Trading records, forecasts, cash flow, and experience of the people running the business

• Current assets, fixed assets, and revenue generation

• Future prospects of the company, dividends given out, and trend of share prices