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Internal and External Sources of Finance Essay

Internal sources of finance for Tesco

Tesco’s main internal source of income will be their retained earnings. Retained earnings are the amount of net income that Tesco have retained and not paid out. Retained earnings are what are paid to the business owners. Fixed assets are another form of an internal source of finance; this form of finance is a lot harder to convert into cash as fixed assets tend to be things such as vehicles, machinery, buildings and factories.

Fixed assets can take a while to convert into cash so Tesco would not rely on them to be a short-term access to finance. Current assets are a key source of finance for Tesco; current assets are cash and things that are easy to convert into cash. The things that can be converted into cash easily are things such as stock; once the stock has been sold earning will be retained by Tesco. Tesco have to ensure current assets are no lower than current liabilities as this may prevent them from paying off any possible debts they may have.

External sources of finance for Tesco

As Tesco are a large company some forms of external finance do not apply to them, things such as loans, credit cards and bank overdrafts will be of no interest to Tesco as they are too financially significant to benefit from them. However, the sources that do apply to Tesco are investments from shareholders, Tesco have many competitors all competing for the same thing, to be the biggest supermarket within the UK. For Tesco to take that title they will need as much investors as possible. An average loan from the bank would not benefit Tesco as the loan is likely to be small; however, if Tesco needed a quick source of finance of a large quantity, things such as a government grants would be beneficial; it would be beneficial as the grant is likely to be large.

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