Capital Expenditure

Finance spent on fixed assets that have a Long term Function and generate money for the business -
They are long term sources - Loans have interests and shares have IPO (Initial public offering)

Revenue expenditure -

Payments for the daily running of a business (e.g. Wages, raw material, rent, electricity)
Indirect expenses like insurance and advertising (overheads).
Needs to be controlled and covered immediately to keep the business operational
Financed through short term sources.

Internal sources -

Personal funds : Sole traders and partnerships

Sole traders maximise their control over the business through investment of personal funds
Retained profits : that the business keeps after paying taxes and dividends to use within the
business.
Purchasing and/or upgrading fixed assets
You don't need to give proof of what you do with it
Used for contingency funds - emergency money
Also known as ploughed-back profit

Source Length Costs Loss of Suitable for

control
Personal All: long, medium Only None Business start-ups.
funds and short-term. opportunity To ensure survival in times of
cost. crisis and recession.
Retained All: long, medium Opportunity None Everything, this is the primary
profits and short-term cost. source of finance for almost all
Loss of companies.
dividends.
Sales of Depends on the Only None When fixed assets need to be
assets size of the asset. opportunity updated.
cost. Changing corporate objectives.

External Sources -

Share Capital(K)
1. Equity capital -
a. Dilution of ownership
b. Dividends for shareholders
c. Permanent source of capital

Floating Companies - companies who offer shares to public for the first time (IPO)

Market cap -
Small and medium enterprises -

 micro enterprises: those with between one and nine employees

  small enterprises: those with ten to 99 employees
 medium enterprises: those with 100-499 employees.
Types of Capital invested -

1. Equity finance -
a. No interest
b. You have to give dividend
c. No liability
d. You can do what you want with the money

2. Debt finance -
a. Principle amount + interest
b. Liability
c. You have to show what you do with the money
3. Trade credit -
a. Buy now, pay later
b. Short term source of finance
4. Overdraft -
a. Interest is charged on a daily basis
b. Payable on demand
c. Rate of interest is high
d. Expensive - only fulfils current needs
5. Debt Factoring -
a. They buy the debters
b. Take high commission - 15 - 20%
6. Lease
a. Renting of assets
7. Angel investors and venture capitalists -
a. (like Shark tank)
b. Buy some shares in a start up and help it grow
c. Then they sell it when it becomes huge and gain money
d. Venture capitalists are firms which do the same^

Debter - Who owes to the business

Crediter - to whom the business owes

Gearing - refers to the level of a company's debt related to its equity capital, usually expressed in
percentage form. It is a measure of a company's financial leverage and shows the extent to which its
operations are funded by lenders versus shareholders.

When a company's gearing is high - Debt % in total capital employed is higher

High Gearing -
1. Advantages -
a. Interest gets deducted from the profit before tax thus you have to pay less tax
b. Interest charge is less thus more dividends for shareholders.