Internal and External Sources of Finance

1 January 2018

Tesco used all types of internal sources. But firstly I’m going to explain what a internal source is and what are advantages and disadvantages of this sources.

Internal source are funds that are found inside of the business. Such as profits can be held back for the finance expansion. Furthermore other sources of the finance are mostly long term and it can be paid back over the years that pass. There are many advantages of the internal source such as the morale of promotee. Also things such as better assessment of abilities or another advantage is that it make the promotions more successful and the cost for some jobs decrease. Lastly for the advantage is the employee and the employer’s relation improves and develops. But however the disadvantages are thing inbreeding, any kind of morale problems of those that are not promoted . Another disadvantage of the internal source is the need for a management for programs such as the development programs. There many more disadvantages like missing good talent that are outside and no more new ideas.

The first internal source of finance that Tesco has used could be the retained earnings. Retained earning mention the percentage of the net earnings that are not being paid. But however retained by the company so it can be used to reinvested into the core of the business or pay the debts off. It is also recorded under the shareholders equity on the balance sheet. The advantage of this method is that it is cheap, its very flexible and it does not dilute the ownership of the company. But the disadvantage of retained earnings can be things such as the danger of hoarding the cash and also the shareholders may prefer dividends if the organisation isn’t earning a good amount to return onto the investment. Tesco used this method is to reinvest into a specific percentage of their end of year profits back into their organisation. So then they can try and improve it and each year Tesco decides how much money are they willing to re-invest on. But this all would depend on how much profits they actually make.

Another type of internal source that Tesco uses is the fixed assets source.

A limited
time offer!
Get authentic custom
ESSAY SAMPLEwritten strictly according
to your requirements