Principles of Financial Management Assignment Example | Topics and Well Written Essays - 750 words

Principles of Financial Management - Assignment ExampleFunds for business operations rout out be obtained from both sources, these include congenital as well as external sources.Internal sources of finance refer to funds embossed(a) from competencies and resources within the validation, for example sale of glacial assets and m bingley saved from the total earnings. External sources of finances refer to those sources that are located out of the business vicinity, in the environment in which the business is direct (Bendrey, 2001, p.16). For example sale of shares to other investors, bank loans, overdraft and investments from the investment world. Several benefits are associated with both kinds of financing methods. External financing sources such as sale of shares is one of the most fastest method for raising capital and gaining huge amount of money in a very short period of time. Money raised through sale of shares does not need to be returned and no interest needs to be paid. On the other hand, funds raised through internal sources allow the organization to continue controlling the organization and is not associated with payment of interest. If loan is obtained from banks, organizations can gain access to heavy amount of funds which can be repaid over a long period of time and company does not losses its say on the operations.These sources of finance have disadvantages associated with them, in incase of sale of shares, owners of the company loose control and shareholders even participate in decision making process (Cottrell, 1980, p.248). If an organization borrows loan from a bank, it has a obligation to not only repay the loan amount, it even has to pay the interest levied on the loan amount which might become difficult to repay if the organization fails to generate revenue. The money raised through internal sources are quite limited are required for day to day financing purposes. If money raised through internal sources is used up, the company migh t suffer from