internal finance Advantages, disadvantages, short term and long term

what are internal scorses of finance ?

1. retained profit

2. net current assets

3.  sale of assets

retained profit

profit (sales revenue minus total costs) kept in the business to fund future expenditure.

net current assets

current assets minus current liabilities shows the money available in the business to fund day-to-day expenditure.

sale of assets

selling an item of worth owned by a business in order to achieve an immediate cash injection.

Retained profit ( pros)

• No interest charges

• Available immediately

• Only available up to the amount already accumulated by the business and therefore avoids debt

• No loss of ownership (control)

Retained profit (cons)

• Amount available may be limited

• Reduces payments to shareholders which may cause dissatisfaction

• Once used it is not available for alternative purposes

Net current assets (pros)

• Encourages the business to manage cash flow effectively

Net current assets (cons)

• Can put pressure on customers as shorter credit terms are offered and this negatively affects relationships with suppliers if longer credit terms are negotiated

• Lower stock holdings can affect the firm’s ability to meet customer needs

Sale of assets (pros)

• No interest charges

• Reduces capital tied up in assets, releasing it for other purposes

• Can mean disposing of an asset no longer use to the business

Sale of assets (cons)

• it is ikely that the amount received is not a true reflection of the value of the asset

• Can increase costs in the long run if an asset needs to be leased back