ACCA FM Syllabus E. Business Finance - Retained Earnings & WC - Notes ^{1 / 2}

Strictly speaking these are not ALL available as possible finance as many will have already been spent

Businesses make profits for either distribution back to their shareholders, paying off loans or re-investing in the business

The distribution back to shareholders (dividend policy) will be looked at later, but what about paying off a loan?

This should only occur where the ROCE made by the company is less than the interest they are paying on the loan.

Any further monies available can, of course, be used for investments.

The investments chosen though will need to at least match the needs of the shareholders and debtholders (the WACC)

By improving the recovery of receivables and delaying the payment of payables, business can free up cash short term to invest
This is also aided by the quick turn around of inventory