Sources of finance
| English | Chinese | Pinyin |
|---|---|---|
| retained profit | 留存利润 | liú cún lì rùn |
| interest | 利息 | lì xī |
| share issues | 发行股票 | fā xíng gǔ piào |
| grants | 补助金 | bǔ zhù jīn |
| trade credit | 商业信用 | shāng yè xìn yòng |
| overdrafts | 透支 | tòu zhī |
| mortgages | 抵押贷款 | dǐ yā dài kuǎn |
| debt | 债务 | zhài wù |
| equity | 所有者权益 | suǒ yǒu zhě quán yì |
| diluted | 稀释 | xī shì |
Where the money comes from
- Needing finance is one thing; getting it is another. A start-up and a global plc have very different options.
- The right source depends on the amount, the purpose, and the cost.
Sources of finance lab
Choose the best type of finance by time, risk and ownership.
Which is an internal source of finance?
Retained profit comes from within the business.
Internal vs external
- Internal sources: retained profit 留存利润, selling assets, tighter working capital. No interest 利息, no loss of control.
- External sources: from outside the business — loans, share issues 发行股票, grants 补助金, trade credit 商业信用.
Sources of finance are internal or external
Which is a short-term source of finance?
Overdrafts and trade credit are short-term.
A long-term asset should be funded with a ______-term source of finance.
Match the term of finance to the purpose.
Short-term vs long-term
- Short-term: overdrafts 透支, trade credit — for day-to-day cash needs.
- Long-term: bank loans, mortgages 抵押贷款, share issues — for big, lasting investments.
Banks are a key external source of finance, through loans and overdrafts
A drawback of raising finance by issuing shares (equity) is that it:
Equity dilutes ownership and control, though it needs no repayment.
A bank loan (debt) must be repaid with interest, but lets owners keep control.
Debt keeps control but adds a repayment obligation.
Debt 债务 vs equity 所有者权益
- Debt (loans): must be repaid with interest, but the owners keep control.
- Equity (selling shares): no repayment, but ownership and control are diluted 稀释.
Match the source to the need. Funding a long-term asset with a short-term overdraft is dangerous; financing daily wages with a 20-year loan is wasteful. The source's term should fit the purpose.
You've got it
- internal sources (retained profit) cost nothing extra; external sources come from outside
- short-term (overdraft, trade credit) vs long-term (loans, shares)
- debt keeps control but needs repaying; equity needs no repayment but dilutes control