Business Finance Concepts and Risks

The video tutorial discusses various sources of finance for businesses, emphasizing the importance of choosing appropriate and adequate funding. It covers internal sources like retained profits, asset sales, and capital use, as well as external sources such as loans, overdrafts, venture capital, and ordinary shares. The tutorial highlights the risks and benefits associated with each type of finance, providing insights into how businesses can effectively manage their financial needs.

Why is it important for a business to choose appropriate finance?

• To avoid paying taxes

• To increase the company's market value

• To impress potential investors

• To ensure it can cover its needs without excessive interest payments

Which of the following is NOT an internal source of finance?

• Effective use of capital

• Venture capital

• Sales of assets

• Retained profits

What is a common use for loan capital in a business?

• To pay employee salaries

• To purchase fixed assets

• To invest in stocks

• To cover daily expenses

What is a characteristic of an overdraft facility?

• It requires no collateral

• It can be recalled at short notice

• Interest is calculated annually

• It is a long-term borrowing method

What is a potential risk of having too many loans?

• It decreases the company's gearing

• It can lead to dangerous levels of debt

• It reduces the company's market value

• It increases the company's equity

What is a key risk associated with venture capital?

• It is only available for large corporations

• It involves giving up an equity stake

• It requires high interest payments

• It must be repaid within a short period

How is the market value of a company's shares determined?

• By the company's annual profit

• By the price another investor is willing to pay

• By the company's total assets

• By the number of employees

What distinguishes venture capital from a bank loan?

• Bank loans do not require collateral

• Bank loans are interest-free

• Venture capital is invested for an equity stake

• Venture capital requires monthly repayments

What is a potential downside of using personal savings to fund a business?

• It can lead to high interest payments

• It may result in loss of personal assets if the business fails

• It requires approval from a bank

• It limits the business's growth potential

Why might a business owner choose to invest personal funds into their business?

• To reduce the company's equity

• To ensure the business succeeds

• To avoid paying taxes

• To increase the company's gearing