Finance:
Strategic role:
To plan, monitor and control the allocation of a businesses' finances in order to link the
goals of the business with the resources it has.
Objectives:
Profitability: maximising profits and making a financial return from business activities.
Growth: increasing size and value of business in long term.
Efficiency: maximising return while minimising inputs
Liquidity: extent to which businesses can meet its short-term financial commitments i.e.
short-term debts / current liabilities.
Solvency: whether the business can meet its long-term financial commitments and the
long-term stability of the business.
Short term and long term:
- Short term objectives are typically liquidity and solvency.
- Long term objectives are profitability, efficiency and growth.
, Internal sources of finance:
- Internal- means within the business.
- Retained- means profits that are kept.
Retained profits are the profits that a business kept and reinvested back into the business
(they are not distributed to shareholders).
Advantages:
- Doesn’t increase debt levels- because you’re using money you’ve already made.
- No new shareholders to share profits with- the ownership of the business is not
diluted
- No interest payments- because this is an internal source of finance
Disadvantages:
- Pretty limited- unless you’ve been making a lot of profit every year, you can’t just
use retained profits.
- Might get wasted- if its just sitting there in the account without being used to invest
and spend for useful things, then what is the point.
External sources of finance:
External sources of finance are those obtained outside the business.
***
DEBT: money provided by an external lender, such as a bank, building society or credit
union.
Short term (less than 12 months):
Strategic role:
To plan, monitor and control the allocation of a businesses' finances in order to link the
goals of the business with the resources it has.
Objectives:
Profitability: maximising profits and making a financial return from business activities.
Growth: increasing size and value of business in long term.
Efficiency: maximising return while minimising inputs
Liquidity: extent to which businesses can meet its short-term financial commitments i.e.
short-term debts / current liabilities.
Solvency: whether the business can meet its long-term financial commitments and the
long-term stability of the business.
Short term and long term:
- Short term objectives are typically liquidity and solvency.
- Long term objectives are profitability, efficiency and growth.
, Internal sources of finance:
- Internal- means within the business.
- Retained- means profits that are kept.
Retained profits are the profits that a business kept and reinvested back into the business
(they are not distributed to shareholders).
Advantages:
- Doesn’t increase debt levels- because you’re using money you’ve already made.
- No new shareholders to share profits with- the ownership of the business is not
diluted
- No interest payments- because this is an internal source of finance
Disadvantages:
- Pretty limited- unless you’ve been making a lot of profit every year, you can’t just
use retained profits.
- Might get wasted- if its just sitting there in the account without being used to invest
and spend for useful things, then what is the point.
External sources of finance:
External sources of finance are those obtained outside the business.
***
DEBT: money provided by an external lender, such as a bank, building society or credit
union.
Short term (less than 12 months):
