FMF9

Syllabus E3. Sources of finance 7 / 8

a) Describe the relative risk-return relationship and the relative costs of equity and debt.
b) Describe the creditor hierarchy and its connection with the relative costs of sources of finance.
c) Identify and discuss the problem of high levels of gearing.
d) Assess the impact of sources of finance on financial position, financial risk and shareholder wealth using appropriate measures, including:
i) ratio analysis using statement of financial position gearing, operational and financial gearing, interest coverage ratio and other relevant ratios
ii) cash flow forecasting
iii) leasing or borrowing to buy.
Sources of finance