3.1 Sources of Finance. Key Outcomes: Understand internal and external finance Analyse the different sources of long-term, medium-term and short-term finance Understand the role played by the main financial institutions
Understand internal and external finance
Analyse the different sources of long-term, medium-term and short-term finance
Understand the role played by the main financial institutions
Evaluate the advantages and disadvantages of each form of finance for a given situation
What is working capital? http://www.investopedia.com/terms/w/workingcapital.asp
What is capital expenditure? http://www.investopedia.com/terms/c/capitalexpenditure.asp
Equity vs Debt? http://www.youtube.com/watch?v=yQtUyBrRBx4 (14mins)
What are shares (stocks)? http://www.investopedia.com/terms/s/shares.asp
What is a bond? http://www.investopedia.com/terms/b/bond.asp
What’s a Debenture? http://www.investopedia.com/terms/d/debenture.asp
What’s an IPO? http://www.investopedia.com/terms/i/ipo.asp
What’s a divined? http://www.investopedia.com/terms/d/dividend.asp
* The IB Business and Management course does not require you to differentiate between bonds and debentures. However, the question regularly comes up in the classroom. The essential difference between a bond and a debenture is that a debenture is secured against the assets of a company (if the company goes bankrupt, investors will be first in line to get their money back), whereas a bond is unsecured and therefore has an increased element of risk.
Sources of LONG TERM external finance:
Sources of MEDIUM TERM external finance:
Sources of SHORT TERM external finance:
Advantages of debt finance:
Advantages of equity finance:
1. Use to which finance is to be put - which affects the time period for which finance is required:
4. Legal structure and desire to retain control:
5. Size of existing borrowing:
The airline ‘Go’ was sold by British Airways in 2001 for £110 million. 43% of the shares were held by 3i – a venture capital company.
In 2002, Easyjet bought Go for £374 million – and financed the purchase by offering new shares to existing shareholders.
Q. How much money did 3i make on the deal?
If you had to find the finance for: