💡 Owners’ Investment – Think of it as the money you (or the business owners) put into the company, just like adding your pocket money to a savings jar. This is the first line of funding and shows the owners’ confidence in the business.
📈 Retained Earnings – These are the profits that the business keeps instead of paying out as dividends. They’re like a “rainy‑day fund” that can be used for future projects.
Formula: \$Retained\ Earnings{end} = Retained\ Earnings{start} + Net\ Profit - Dividends\$
| Period | Retained Earnings Start | Net Profit | Dividends | Retained Earnings End |
|---|---|---|---|---|
| Year 1 | $50,000 | $80,000 | $20,000 | $110,000 |
🔄 Sale of Unwanted Assets – If the business owns items it no longer needs (e.g., an old delivery van), selling them can bring in cash. It’s like clearing out your closet and earning money from the stuff you don’t use.
🏠 Sale and Leaseback of Non‑Current Assets – The company sells a big asset (like a factory) to a buyer and then leases it back. This gives instant cash while still allowing the business to use the asset. Think of it as selling your house and renting it back so you can keep living there.
⚙️ Working Capital – This is the money the business uses for day‑to‑day operations (paying suppliers, wages, etc.). It’s like the “fuel” that keeps the business engine running.
Formula: \$Working\ Capital = Current\ Assets - Current\ Liabilities\$
Example: If current assets are \$200,000 and current liabilities are \$120,000, then \$Working\ Capital = 200,000 - 120,000 = 80,000\$.
Exam Tip: When answering questions about internal finance, remember to list all five sources and give a quick example or analogy for each. Use the formulas where appropriate and show your calculations clearly.
📌 Tip for calculations: Always keep the units consistent (e.g., thousands of pounds) and double‑check your arithmetic before finalising your answer.