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Sources Of Finance and Profit and Loss Accounts.

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Sources Of Finance Internal Sources? These are sources of finance that come from the business? assets or activities. Capital Ownership Capital In this context, 'owners' refers to those people/institutions who are shareholders. Sole traders and partnerships do not have shareholders - the individual or the partners are the owners of the business but do not hold shares. Shares are units of investment in a limited company, whether it be a public or private limited company. Shares are generally broken down into two categories: Non-Ownership Capital Whilst the following sources of finance are important, they are not classed as Ownership Capital - Debenture holders are not shareholders, nor are banks who lend money or creditors. Only shareholders are owners of the company. Retaining Profit Profit not distributed to stockholders: the part of after-tax profits of a business that is not distributed to stockholders. Selling Assets The business can finance new activities or pay-off debts by selling its assets such as property, fixtures, and fittings, machinery, vehicles etc. Deprecation This is a form of long term loan that can be taken out by a public limited company for a large sum and it will be paid back overall several years. It is usually borrowed from specialist financial institutions. Shares An important source of finance for limited companies. A share issue involves a business selling new shares that entitle the shareholders to share in the control of the business. ...read more.


The only source of funds might be the owner's own savings, retained profits and borrowing from friends. Companies can issue extra shares to raise large amounts of capital in a rights issue. P5 Understanding Accounts By law companies are expected to produce financial statements each year. There are two main financial statements: 1. The profit and loss account shows the value sales, the costs incurred in making these sales and the profits or losses that result. Profits arise when the sales revenue is greater than the total cost of making these sales 2. The balance sheet shows the value of assets owned, the liabilities owned and the value of the owner? capital. The capital is the worth of the business at the accounting date. Profit And Loss Account A profit and loss is a financial document which is used to calculate the value of sales that have been made at the end of each year. Financial institutions decide, with the use of this document whether they intend to invest their money in the organisation. Business of smaller size such as private limited companies (Ltd) and sole traders, make good use of the document to see how much of a profit or loss they have made at the end of the year. The document is also used to set a future budget. Balance Sheet A balance sheet represents the assets, liabilities, capital and drawings. ...read more.


Stakeholders are mainly interested in looking at ratio analysis as they are concerned with how well the directors of the business are doing. The way to judge this is to compare the performance of the business this year with the previous years, with the performance of competitors, with the average for the industry or with the targets set at the start of the year. Ratios are particularly useful as a basis for such caparisons. Ratios which can be used to measure the businesses performance include: * Profitability ratios * Performance ratios * Liquidity ratios Hill Systems Ltd Hill systems ltd had a net profit of £318,000, in 2007, and in 2008 their net profit was £480,000. Their difference in the sales in 2007 to the sales in 2008, so there has been a significant improvement. In 2007 Hill Systems ltd had £2228,000 total capital employment, and in 2008 their capital employed was £2508,000, their was another improvement in this as well. If the business was to carry on there will be improvement in sales and profit, so the business is worth carrying on. Is Hill Systems A Reliable Business? I believe it is, due to the raise of net profit a year on. I believe if they carry on with the business they could get double the net profit with the changes happening economically. Hill Systems is a reliable business because its managed to improve most areas, which gives the business a massive advantage to carry on for a further year or years. ...read more.

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