A3.1-3.2 roles & sources of finance

what are capital expenditures?

money spent on long-term fixed assets that are repeatedly used in production, often expensive, used as collateral, and requiring careful consideration of return on investment

what are advantages of capital expenditures? (no need to memorize all)

• Add additional production capacity​

• Improve efficiency by investing in newer technologies​

• Replace old or outdated capital equipment and machines​

• Comply with laws that might require green technologies

what are revenue expenditures?

finance spent on short-term, daily business activities that create goods and services, generate immediate value, and must be carefully controlled to keep production costs from rising too high

what are internal sources of finance?

personal savings (for sole traders)

retained profits

sale of assets

what are personal savings? (sole trader only)

money that a person (not a business or organization) keeps in an account in a bank. allows complete control & no interest but risky and might be lacking

what are retained profits?

the amount of profit left after paying all indirect & direct costs, incomes, dividends, and taxes

what are sale of assets

the transaction of a company selling its individual assets, such as equipment, property, or intellectual property, rather than selling its shares or stock

what are external sources of finance?

share capital

loan capital

overdrafts

trade credits

leasing

microfinance

crowdfunding

business angels

venture capital

what is share capital?

raised by the selling of shares in a limited liability company​

privately held companies sell to private people who become part owners of the business​

publicly held companies will begin with an IPO which helps them start selling shares publicly on the stock market

what is loan capital?

medium- to long-term sources of finance obtained from banks with interest and paid back in installments over a period of time

what are types of loan capital?

mortgage:​ loans used for the purchase of property such as land/buildings

development loans​: flexible loans used for a specific business needs of the borrower​

debenture​: sold to individuals like a loan but it might pay interest for a fixed time

what are overdrafts

a temporary period when a business overdraws, or goes below zero, on their bank account.​ they are typically used with a minor cash flow issue where funds are only needed for a number of days.

what are trade credits

allows a business to postpone payments or to 'buy now and pay later’. ​although a sale is made at the time of purchase, the seller or credit provider does not receive any cash from the buyer until a later date

what is leasing

form of hiring whereby a contract is agreed between a leasing company and the customer. the lessee pays rental income to hire assets from the lessor who is the legal owner of the assets.

what is microfinance

financial service aimed at entrepreneurs of small businesses, especially those on low incomes. enable disadvantaged members of society to gain access to essential financial services to help eradicate poverty.

what is crowdfunding

a method of raising capital by securing small amounts of money from a large number of people, primarily through online platforms. offers an alternative to traditional financing methods and helps with market validation and community building

what are sponsorships

company provides financial or material support to an individual, organization, or event in exchange for advertising and brand exposure

what are business angels

wealthy individuals who provide capital to early-stage startups or small businesses in exchange for equity or convertible debt. contribute valuable expertise, experience, and industry contacts to help the companies they invest in succeed. 

what are venture capitals

a type of private equity financing provided to startups and early-stage companies that have a high potential for growth. investors provide capital in exchange for equity (ownership) in the company, and often offer strategic guidance and business expertise in addition to funding