ZIMSEC A Level · Business Studies · Form 6
Sources of finance
- Internal: retained profit, sale of assets, working capital management.
- External short-term: overdrafts, trade credit, debt factoring.
- External long-term: bank loans, loan notes (debentures), share issues, leasing, venture capital, government grants and microfinance.
Choice depends on cost, amount, time period, control and risk.
Cash flow management
Cash-flow forecasts; improve cash flow by chasing debtors, negotiating credit from suppliers, leasing instead of buying, and reducing inventory.
Costs and break-even
Fixed, variable, semi-variable, direct and indirect costs. Break-even = fixed costs ÷ contribution per unit.
Budgets and variances
Budget setting, variance analysis (adverse or favourable) and zero-based budgeting.
Investment appraisal
Payback, average rate of return, and net present value.
Worked example: An investment of US$40 000 produces annual profit of US$6 000 over 5 years. Find the average rate of return.
ARR = 6 000 ÷ 40 000 × 100 = 15%
Financial statements and ratios
Income statement, statement of financial position, and ratios: profitability (margins, ROCE), liquidity (current, acid test), gearing and efficiency.
Check yourself
- Give two internal sources of finance.
- Why might a growing firm suffer cash-flow problems?
- What is debt factoring?
Show answers
- Any two: retained profit, sale of assets, reducing inventory/working capital.
- It spends on inventory, staff and assets before customers pay (overtrading).
- Selling trade receivables to a factoring company for immediate cash (less a fee).
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