9609 · 5.2.3
Factors affecting the sources of finance
**Factors affecting finance** (5.2.3) feeds directly into **5.2.4 selection**. In **analyse** questions, take each factor from the syllabus and **apply it to the case** — generic lists score fewer marks.
Need to know
What you need to know
- Capital expenditure (for non-current assets) should be financed by long-term sources.
- Revenue expenditure (for working capital) should be financed by short-term sources.
- The amount of finance needed can make certain sources, like a public share issue, unsuitable or not cost-effective.
- A mismatch between the purpose and the source can lead to financial inefficiency and risk.
Explanation
Factors affecting the sources of finance
- Capital expenditure (for non-current assets) should be financed by long-term sources.
- Revenue expenditure (for working capital) should be financed by short-term sources.
- The amount of finance needed can make certain sources, like a public share issue, unsuitable or not cost-effective.
- A mismatch between the purpose and the source can lead to financial inefficiency and risk.