Page 5: Sources of finance
A business needs finance to fund growth. One source is the profits the business generates. However, if it wants to grow more quickly it can either issue new shares or seek funds externally, e.g. through bank loans. To be able to do these things, it must be attractive to investors. Raising capital through a share issue is expensive and becomes harder when you have borrowed from banks excessively and are faced with large interest repayments.
In the late 1990s MFI borrowed from external sources to finance growth. This generated high interest repayments and limited the company's ability to pay dividends, making it unattractive to existing and potential new shareholders.
In 1999, MFI identified an important new source of finance to fund growth: sale and leaseback. Some freehold buildings were sold off and MFI then leased them back from the new owner.
In recent times MFI has been highly profitable. As a result of this, the £12.25 million acquisition of Sofa Workshop was financed entirely by internal cash flow. MFI's astute financial management has therefore enabled the acquisition of a star new asset - Sofa Workshop.