際際滷

際際滷Share a Scribd company logo

Edexcel A level Business 2.1.1 Internal finance

Download as PPTX, PDF
Revisionstation
Revisionstation

This document provides information about internal sources of finance for businesses. It defines internal finance as investment that comes from within a business, as opposed to external finance from outside sources. The key internal sources of finance discussed are owner's capital (personal savings invested in the business), retained profits (profits from previous years reinvested in the business), and the sale of business assets. For each source, the document outlines what it is, when it would be an appropriate source of finance, and its advantages and disadvantages. It also includes sample questions about internal finance in the style of exam questions.

1 of 27
Download to read offline
Edexcel A2 Business 2.1.1 Internal Finance Revisionstation
You will need worksheet 2.1.1 for this lesson
From Edexcel a) Owners capital: personal savings b) Retained profit c) Sale of assets
Starter What do you own? Do you have any savings? Are you good with money? If I gave you 贈20 right now would you save it or spend it?
Definition: Finance Finance means the management of the investment needed to; open, run and grow a business There are internal finance methods (investment that comes from within a business) and external finance methods (investment that comes from outside the business) This topic is just about internal finance, the next unit 2.1.2 is about external finance
Reasons for raising finance A. To pay debts, this is likely to be a consolidation loan which may pay off suppliers B. To help a business over a slow trading period - overdraft C. To expand: a business may apply for long term finance such as a loan D. To start-up a business may apply for a loan with a business plan or ask friends and family to invest E. To buy stock: a business would ask a supplier for trade credit, typically 30, 60, 90 days
Owners capital: personal savings
Owners capital This is also sometimes called owners equity It shows the stake the owner has in the business This represents the net assets of the company if all the debts of the business were paid off how much would be owed to the owner The owner may have used savings or a redundancy pay out to start up the business, this is in theory still owed back to the owner, although they may never take it back out in the lifetime of the business
When is owners capital appropriate? Sole traders and partnerships would be the two business forms which would mostly use owners capital to expand and to grow
Retained profit
Retained profit After a year or more of trading a business may have some profits that they are able to re-invest into the business to help it grow. The advantage of retained profits is there is no interest to pay The disadvantage is once retained profit is used it has gone and cannot be used elsewhere in the business
When is retained profit appropriate? If a business is in its first year of trading it will NOT have any retained profits as it will not have made any to retain Also, if a business has not been profitable then there will NOT be any retained profit to spend Are there any other circumstances when retained profit would not be an appropriate source of finance?
Sale of assets
Sale of assets A business can raise finance by selling items that they already own, these are called assets This could be: Machinery Land Premises Vehicles The business that sells the asset will no longer have the benefit of that asset and it will not appear on the balance sheet of the company meaning the business will look less attractive to investors
When is the sale of assets appropriate? All types of business can sell their assets When a business is growing it may need to raise cash fast to be able to continue to trade Assets (like a van or an iPad) can be sold quickly (same day) for cash What other assets might a business have?
Advantages of selling assets In a larger business which has a portfolio of products, then the sale of assets can improve efficiency and increase capacity utilisation Assets from one brand can be sold off to raise finance to invest in another Can you link this to the Boston Box and product lifecycle theories?
Disadvantages of selling assets This may not raise enough money for growth or expansion Selling assets may draw into question just how well run the business is, if it needs to sell its assets to pay bills or to continue to trade A new start-up would be in a lot of trouble if they needed to sell their assets. E.g. a caf辿 that has just opened could sell their coffee machine
Plenary Quiz - fill in the boxes Internal source of finance Advantages Disadvantages Retained profit Sale of assets Owners equity
Plenary Quiz Answers Internal source of finance Advantages Disadvantages Retained profit No interest payments to be made on loans Easy access to finance, if it is in a bank account it could be accessed the same day, this is in comparison to a loan which could take longer with all the paperwork Owners keep control Loss of interest payments on savings if he retained profits were left in a savings account instead Opportunity cost of not being able to use the retained profits elsewhere in the business Sale of assets No interest payments to be made on loans Straightforward sales can take place on a number of platforms e.g. eBay Once the business has sold the asset they lose the benefit of it e.g. a van they cannot make deliveries with Can indicate to potential investors that the business is in trouble Owners Capital No interest payments to be made on loans Easy access the owner may have the funds sitting in a bank or savings account No complex paperwork and no security needed Owner may not have the capital to put into the business and may still need to borrow, some businesses may have a term debt to gain a long- term profit
Sample Edexcel A2 questions
Case study for question 1
Sample question 1 Knowledge 1 Application 2 Analysis 1
Answer sample question 1
Peer / self marking grid for 4 mark essay question Mark Knowledge 1 Giving a correct business keyword definition, understanding of the question Award 1 mark Application 2 Applying the answer to the business in the question. Not just a name drop, has to be about the product, the market, the objectives or the situation given. Somewhat applied with some general comments only award 1 mark Very well applied and all about the case study award 2 marks Analysis 1 Chain of reason, this means or which means or because or therefore which is logical and fully developed. Award 1 mark Examples of peer review comments: What went well: You gave a correct business definition and applied your comments to the case study Even better if: You had more analysis or a complete chain of reason
Key terms Owners capital; this is the money invested by the owner in the business, this may have come from their own personal savings Retained profit; this is profit from a previous year that is saved and could be used to reinvest into the business Asset; this is an item that the business owns that could be sold to raise cash e.g. a van, a machine
Revision Video
Edexcel A level Business 2.1.1 Internal finance

More Related Content

Edexcel A level Business 2.1.1 Internal finance

  • 1. Edexcel A2 Business 2.1.1 Internal Finance Revisionstation
  • 2. You will need worksheet 2.1.1 for this lesson
  • 3. From Edexcel a) Owners capital: personal savings b) Retained profit c) Sale of assets
  • 4. Starter What do you own? Do you have any savings? Are you good with money? If I gave you 贈20 right now would you save it or spend it?
  • 5. Definition: Finance Finance means the management of the investment needed to; open, run and grow a business There are internal finance methods (investment that comes from within a business) and external finance methods (investment that comes from outside the business) This topic is just about internal finance, the next unit 2.1.2 is about external finance
  • 6. Reasons for raising finance A. To pay debts, this is likely to be a consolidation loan which may pay off suppliers B. To help a business over a slow trading period - overdraft C. To expand: a business may apply for long term finance such as a loan D. To start-up a business may apply for a loan with a business plan or ask friends and family to invest E. To buy stock: a business would ask a supplier for trade credit, typically 30, 60, 90 days
  • 8. Owners capital This is also sometimes called owners equity It shows the stake the owner has in the business This represents the net assets of the company if all the debts of the business were paid off how much would be owed to the owner The owner may have used savings or a redundancy pay out to start up the business, this is in theory still owed back to the owner, although they may never take it back out in the lifetime of the business
  • 9. When is owners capital appropriate? Sole traders and partnerships would be the two business forms which would mostly use owners capital to expand and to grow
  • 11. Retained profit After a year or more of trading a business may have some profits that they are able to re-invest into the business to help it grow. The advantage of retained profits is there is no interest to pay The disadvantage is once retained profit is used it has gone and cannot be used elsewhere in the business
  • 12. When is retained profit appropriate? If a business is in its first year of trading it will NOT have any retained profits as it will not have made any to retain Also, if a business has not been profitable then there will NOT be any retained profit to spend Are there any other circumstances when retained profit would not be an appropriate source of finance?
  • 14. Sale of assets A business can raise finance by selling items that they already own, these are called assets This could be: Machinery Land Premises Vehicles The business that sells the asset will no longer have the benefit of that asset and it will not appear on the balance sheet of the company meaning the business will look less attractive to investors
  • 15. When is the sale of assets appropriate? All types of business can sell their assets When a business is growing it may need to raise cash fast to be able to continue to trade Assets (like a van or an iPad) can be sold quickly (same day) for cash What other assets might a business have?
  • 16. Advantages of selling assets In a larger business which has a portfolio of products, then the sale of assets can improve efficiency and increase capacity utilisation Assets from one brand can be sold off to raise finance to invest in another Can you link this to the Boston Box and product lifecycle theories?
  • 17. Disadvantages of selling assets This may not raise enough money for growth or expansion Selling assets may draw into question just how well run the business is, if it needs to sell its assets to pay bills or to continue to trade A new start-up would be in a lot of trouble if they needed to sell their assets. E.g. a caf辿 that has just opened could sell their coffee machine
  • 18. Plenary Quiz - fill in the boxes Internal source of finance Advantages Disadvantages Retained profit Sale of assets Owners equity
  • 19. Plenary Quiz Answers Internal source of finance Advantages Disadvantages Retained profit No interest payments to be made on loans Easy access to finance, if it is in a bank account it could be accessed the same day, this is in comparison to a loan which could take longer with all the paperwork Owners keep control Loss of interest payments on savings if he retained profits were left in a savings account instead Opportunity cost of not being able to use the retained profits elsewhere in the business Sale of assets No interest payments to be made on loans Straightforward sales can take place on a number of platforms e.g. eBay Once the business has sold the asset they lose the benefit of it e.g. a van they cannot make deliveries with Can indicate to potential investors that the business is in trouble Owners Capital No interest payments to be made on loans Easy access the owner may have the funds sitting in a bank or savings account No complex paperwork and no security needed Owner may not have the capital to put into the business and may still need to borrow, some businesses may have a term debt to gain a long- term profit
  • 20. Sample Edexcel A2 questions
  • 21. Case study for question 1
  • 24. Peer / self marking grid for 4 mark essay question Mark Knowledge 1 Giving a correct business keyword definition, understanding of the question Award 1 mark Application 2 Applying the answer to the business in the question. Not just a name drop, has to be about the product, the market, the objectives or the situation given. Somewhat applied with some general comments only award 1 mark Very well applied and all about the case study award 2 marks Analysis 1 Chain of reason, this means or which means or because or therefore which is logical and fully developed. Award 1 mark Examples of peer review comments: What went well: You gave a correct business definition and applied your comments to the case study Even better if: You had more analysis or a complete chain of reason
  • 25. Key terms Owners capital; this is the money invested by the owner in the business, this may have come from their own personal savings Retained profit; this is profit from a previous year that is saved and could be used to reinvest into the business Asset; this is an item that the business owns that could be sold to raise cash e.g. a van, a machine

Editor's Notes

  1. This should reveal that it is hard to save money and some people are gifted with money, others are not.
  2. Assets: Card machine Computer Mobile phones Equipment like a digger or a sewing machine Tools Transport Shop fittings And so on