Finance For Large Businesses
Specification:
3.1 Finance for Large Businesses • sources of finance available • appropriateness of the sources |
Candidates need to be familiar with the main
methods that a large business might use to raise funds. These include: retained profits, a new share issue, obtaining a loan or mortgage and selling unwanted assets. Candidates should be able to recognise the advantages and disadvantages of each method for a given situation. |
Sources of Finance
Starter Activity: Venture capitalists are a method of raising finance. What other methods can existing businesses use to raise finance?
sources_of_finance_for_a_growing_business.doc | |
File Size: | 25 kb |
File Type: | doc |
Plenary: Use your 9 mark structure to answer the following question:
Evaluate whether a bank loan or a share issue is the best source of finance for a growing business. (9 marks)
Evaluate whether a bank loan or a share issue is the best source of finance for a growing business. (9 marks)
Sources of Finance
Learning Objectives:
- To understand the different sources of finance available for a large business (D-E)
- To analyse the advantages and disadvantages of the sources of finance (B-C)
- To evaluate the most effective source of finance for a large business (A*-A)
- To understand the different sources of finance available for a large business (D-E)
- To analyse the advantages and disadvantages of the sources of finance (B-C)
- To evaluate the most effective source of finance for a large business (A*-A)
Starter Activity:
sources_of_finance_ladder_words.doc | |
File Size: | 45 kb |
File Type: | doc |
Why do large businesses need finance?
- New property
- Machinery, equipment and vehicles
- Recruiting and training
- Advertising campaigns
- Raw materials
- Developing new goods and services
- Introducing new methods of production
- Major marketing campaign
- New property
- Machinery, equipment and vehicles
- Recruiting and training
- Advertising campaigns
- Raw materials
- Developing new goods and services
- Introducing new methods of production
- Major marketing campaign
How much do you think this campaign cost?
Why are companies willing to spend a lot on marketing?
What are the problems associated with this?http://www.theguardian.com/media/2007/nov/08/advertising
Why are companies willing to spend a lot on marketing?
What are the problems associated with this?http://www.theguardian.com/media/2007/nov/08/advertising
Retained Profits
- Profit made by the business in earlier years
- Only available to profitable businesses and can be opposed by shareholders
- No interest and available immediately
- Profit made by the business in earlier years
- Only available to profitable businesses and can be opposed by shareholders
- No interest and available immediately
Selling Assets
- Can provide large sums of money depending on what is sold
- A business can sell assets for cash, or sell them and lease them back
- Can provide money without interest charges
- The business may need the asset later
- Will have to pay the new owner which will reduce profits
- Can provide large sums of money depending on what is sold
- A business can sell assets for cash, or sell them and lease them back
- Can provide money without interest charges
- The business may need the asset later
- Will have to pay the new owner which will reduce profits
Bank loans and mortgages
- A bank loan is given in return for repayments over next few years
- Will be charged interest (charge for borrowing so bank profits) Can be expensive
- Can be arranged quickly, larger businesses are seen as more secure
- May be asked for collateral (asset of business that bank takes if not repaid)
- Mortgage is a large loan used to buy property - repaid over a large period of time
- A bank loan is given in return for repayments over next few years
- Will be charged interest (charge for borrowing so bank profits) Can be expensive
- Can be arranged quickly, larger businesses are seen as more secure
- May be asked for collateral (asset of business that bank takes if not repaid)
- Mortgage is a large loan used to buy property - repaid over a large period of time
New share issue
- Only companies can sell shares - shareholders own a part of the company
- Can be sold through the Stock Exchange - PLC's
- No interest is charged on these
- Shareholders can take control of the business
- Shareholders will expect dividends (share of profits)
- Only companies can sell shares - shareholders own a part of the company
- Can be sold through the Stock Exchange - PLC's
- No interest is charged on these
- Shareholders can take control of the business
- Shareholders will expect dividends (share of profits)
sources_of_finance_worksheet.doc | |
File Size: | 1933 kb |
File Type: | doc |
Plenary: Evaluate what you believe to be the best source of finance for a large business. (9 marks)