Internal And External Sources Of Finance

Profits earned or losses incurred by the corporation. Profits retained belong to the common shareholders and the share value increases accordingly.

As a creditor or lender it is of utmost importance that they have all the information necessary to make a sound decision as to whether or not they will lend money to a company. The retained earnings statement, balance sheet, and statement of cash flows will paint that picture for a creditor due to the fact that they will see where the company’s money is being earned and spent through the statement of cash flows, they will see how they are either paying out dividends to investors or reinvesting the money into the business through the retained earning statements, and how solvent the business is by looking at the balance sheet.

SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement

When contemplating expansion and growth, it is imperative to understand the advantages and disadvantages as they relate to funding. Internal financing, or using profits for new investments, is advantageous as it is available immediately, there is no associated interest, there aren’t any restrictions imposed by outside parties, and overall, grants flexibility. However, it can be disadvantageous, as it is not tax-deductible, capital is not increased, and there is more available capital available on the outside market.

This report is focused on identifying the externality, analysing the possible solution to internalise the externality.

A key concept in chapter three is externalities, the repercussions of one’s actions as a result of self-interest. One example that Wheelan gives is texting and driving. As a result of the deaths that people texting and driving cost, the government made a law in which the fine for texting and driving is extremely high, therefore mitigating the incentive to do such. Externalities can either be positive or negative. This concept easily affects economics by causing market failures when a price equilibrium does not account for all the externalities in a product. In addition, in the case where the externality is negative, the government actually makes sure to regulate negative externalities by creating barriers or laws and diverting resources to mitigate the harm.

cash from sales) and external sources of finance from outside the business (e.g. a bank loan)." There is a need of external financing for the expansion through acquisition. External financing is a good source of raising money besides internal funds. As per business finance, "external financing can take the shape of two different types of financing, debt or equity. Debt financing includes bank loans where a company gets financed by issuing debentures which they have to pay back after a certain period of time. It is called debt financing because the company is in debt to the bond holders and if they were to go bankrupt, the bond holders would have claim to any remaining assets. In this case these are secured business loans. Equity financing is when a company decides to give up ownership in the company to raise funds. This is usually done by selling company stock to investors. Sometimes this could include seeking out angel investors or venture capitalists. If you are expecting to get external financing through equity financing make sure that your business has a product or service that is unique, and that there is a high demand for your product or service. Most venture capital investors or even angel investors will not look at an offer unless they see a large growth potential." (2)

BFN1014 Financial Management I TUTORIAL 1 (Week 2): Tutorial Questions Chapter 1: The Role of Managerial Finance Review Questions 1-3 Which legal form of business organization is most common? Which form is dominant in terms of business revenues? What is the goal of a firm and, therefore, of all managers and employees? Discuss how one measures achievement of this goal. What are the major differences between accounting and finance with respect to emphasis on cash flows and decision making?

What is an externality? An externality is a consequence of when a person engages in an activity that affects the well-being of a bystander in which that bystander neither pays nor receives compensation for that consequence. Externalities can come in two forms, a positive externality or a negative externality. A positive externality occurs when the bystander is better off due to the impact of the consequence. A negative externality occurs when the bystander is worse off due to the impact of the consequence. An example of a positive externality is restoring historic buildings in a local community. Restoring historic buildings is considered a positive externality because those who in the local community benefit or are better off because of it. The people living in this community will be able to enjoy the beauty and sense of history the building provides once it is restored. (Mankiw 196)

A. Corporate finance is important to all managers because it helps the managers to determine what projects or expenditures will and will not add value to the firm. It will allow managers to pick only the projects what will add value to the firm. It also helps the managers determine what each project will cost the firm. The managers will look to see if they have capital for those projects. The managers will prepare the capital needed from a combination of its own capital and outside sources (savers) to fund the projects that will add value to the firm.

The internal environment of an organization refers to events, factors, people, systems, structures and conditions inside the organization that are generally under the control of the company. The company's mission statement, organizational culture and style of leadership are factors typically associated with the internal environment of an organization. As such, it is the internal environment that will influence organizational activities, decisions and employee behavior and attitudes. Changes in the leadership style, the organization's mission or culture can have a considerable impact on the organization.

It can be classified into 2 categories . Internal source or external source of finance . Internal source of finance can be done by using retained profit. It is the profit that the company kept rather than pay it to the shareholders . It is kept in the company for further business expanding purposes . But not all business makes profit , it might not be enough to finance the business expansion . The advantages of choosing this source of finance is that it is cheap because the only cost is to pay shareholders when the company earn profit . It will allow the business to have full control of the business because there are no any new shareholders or partners come in to the company and control the business

Organization money is a term that incorporates a sufficient scope of exercises and orders rotating around the administration of cash and other important resources. Financing, essentially lay, is to do something with bringing capital into an association. Organizations can be financed in various courses, each of which gimmicks its own particular focal points, inconveniences and different peculiarities. Basic systems for financing an organization incorporate tackling obligation and exploiting credit game plans, financing through value venture or acquiring pay through speculation items that bear investment or increment in quality. Companies’

The test results were also well document throughout the study. It found that deficits due to investment were financed with long- term and short- term in addition to equity. Market timing cannot totally explain equity issuance as profit deficits were often financed with equity. The study found that companies use equity to fund internal investments such as advertising and Research and Development.

To evaluate the undistributed profits and reserves, retained earnings, profits, and their authentication whether an adequate capital are generated through this channel or not.