Unit 3: D1 Sources of Finance

What is the definition of retained profits?

• The cash available for the day-to-day expenditure such as cash, inventory and debtors.

• The profit a business makes which it keeps within the business to finance growth.

• Assets of value that can be sold to generate cash.

• Money borrowed from a bank.

Which of the following is an advantage of using retained profits as a source of finance?

• A) Money does not have to be repaid and no interest is payable.

• B) It may take time to sell larger assets.

• C) Debtors may be 'put off' if they're being chased for early repayments.

• D) The asset may be needed again in the future.

Fill in the blank: Retained profits are less risky than borrowing because loans often require _______.

• security

• guarantees

• interest-free terms

• no paperwork

What is the definition of selling assets?

• The profit a business makes which it keeps within the business to finance growth.

• Assets are items of value, such as vehicles, machinery and premises, which the business owns and can be sold to generate cash.

• The cash available for the day-to-day expenditure such as cash, inventory and debtors.

• Money borrowed from a bank.

Which of the following is a disadvantage of selling assets as a source of finance?

• It may avoid the need for a loan.

• The asset may be needed again in the future.

• It is flexible, owners have complete control over how the retained profits are used.

• Finance may be available immediately.

What is the definition of net current assets?

• The profit a business makes which it keeps within the business to finance growth.

• Assets are items of value, such as vehicles, machinery and premises, which the business owns and can be sold to generate cash.

• The cash in the business after deducting current liabilities from the current assets. It is the cash available for the day-to-day expenditure such as cash, inventory and debtors.

• Money borrowed from a bank.

Fill in the blank: Selling inventory is a quick way to raise money and reduces the costs of _______ it.

• holding

• buying

• shipping

• making

What is a bank loan in the context of business finance?

• Money borrowed from friends

• Money borrowed from the bank over a set period of time, e.g., 5 years or 10 years

• Money given by the government

• Money earned from sales

Bank loans can have a fixed rate or variable rate of interest which is charged on the amount borrowed, which is repaid in _________?

• monthly instalments

• annual bonuses

• weekly salaries

• one-time payments

Which of the following is an advantage of a bank loan for a business?

• The enterprise can budget easily as it knows the monthly costs it has to pay over a fixed period of time.

• No interest is payable.

• The owner loses their investment if the enterprise fails.

• Property values can decrease.