Q. Define Business
- According to Howard and
Upton, "Business Finance involves a set of administrative functions in an
organisation which relate with the arrangement of cash and credit so that the
organisation may have the means to carry out its objectives as satisfactorily
Q. Why do business
- Business needs funds to purchase assets
and to run day to day operations of the business for the smooth functioning.
The needs of the business can be classified as:
- Fixed capital needs
- Working Capital Needs
are the benefits of Business Finance?
Ans:- (i) Finance helps the firm to meet
its liabilities on time.
(ii) Smooth flow of business
(iii) Use of Business opportunities.
Q. What are the source of Business Finance?
- There are two sources of finance :
Q. Define owner’s
fund and Borrowed fund with merits and demerits.
Ans: - Owner’s Fund: Owner’s fund consists of
funds contributed by owners and accumulated profits.
Features of owner’s fund:
a. Source of permanent
b. No security.
c. Provision of risk
Merits of Owner’s Fund:
a. Permanent capital.
b. No security.
Demerits of owner’s
a. Diffusion of control
b. Under-utilisation of
Borrowed Fund: It refers to the borrowings of the firm.
of Borrowed fund:
Finance for fixed time
Regular payment of interest.
Merits of Borrowed Fund:
No interference in decision making.
Interest as an expense.
Fixed rate of interest.
Demerits of Borrowed fund:
Adequate security required
b. Fixed liability.
Q. What is the
difference between Owners Capital and Borrowed Capital?
Ans: - The difference between Owners Capital
and Borrowed Capital is given here:
It is specific to time period. It is refundable
It is permanent source of capital. It is
refundable only in case of winding up.
It requires assets of the company.
It does not require any security.
Borrowed capital is not risky.
Ownership capital is subject to risk.
No control over management.
It has right to control over management.
Interest is the return.
Profit is the return and it is paid when company
Q. What is the source
of Long term & short term finance?
Ans: - Sources of Long term Finance:
- Equity Shares
- Preference Shares
- Retained Shares
- Loan from Banks and Financial institutions
Sources of Raising Short term Finance
- Trade credit
- Loan from Banks
- Commercial paper
Q. What do the debentures
Ans: - Borrowed Capital of the
Q. For what the term
redeemable is used for?
Ans: - Preference Shares.
Q. What is the source of
raising the Public Deposits?
Ans: - The Public.
Q. What is equity shareholders called?
- Owners of the company.
Q. What is the maturity
period of Commercial Papers?
Ans: - The maturity period of
commercial paper ranges from 90-364 days.
Q. From where internal source
of capital is generated?
Ans: - It is generated within the
Q. Funds required for
purchasing current assets comes under which head?
Ans: - Working capital Requirement
Q. Define the term
Ans: - Convertible debentures are
when the debenture holders get the right to convert equity shares into
debentures at the time of issue of debenture.
Q. Define Shares. What
are two types of Share?
- When the capital of a firm is divided into certain number of units
.These units are called shares. The share of a company is a movable property,
transferable in the manner provided by the articles of the company.
share capital is regarded as owned capital. It is permanent source of finance.
It can meet the fixed capital requirement. Shares may be of two types: