Assess VisionSpring’s decision to finance its growth using retained profits - Edexcel - A-Level Business - Question 1 - 2019 - Paper 2
Question 1
Assess VisionSpring’s decision to finance its growth using retained profits.
Retained profit is a source of internal finance kept by the business, rather than distr... show full transcript
Worked Solution & Example Answer:Assess VisionSpring’s decision to finance its growth using retained profits - Edexcel - A-Level Business - Question 1 - 2019 - Paper 2
Step 1
Retained profits as internal finance
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Answer
Retained profits are funds kept by a business instead of being distributed to shareholders. This financing method can support growth without incurring debt.
Step 2
Benefits of using retained profits
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Answer
VisionSpring’s model allows for profits from each sale to enhance financial stability. By using retained profits, the company avoids interest costs, ensuring more resources can be allocated towards its mission and operational flexibility.
Step 3
Potential counterarguments
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While retained profits can sustain growth, leveraging loans may facilitate quicker expansion and allow VisionSpring to tap into broader markets. There is a risk that relying solely on internal financing may limit their operational capacity.
Step 4
Final assessment
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Using retained profits could be advantageous for VisionSpring, aligning with its values and operational strategy. Nonetheless, the sustainability and scalability of this approach should be evaluated against potential debt financing options.
