Business Finance Overview
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Questions and Answers

What is the primary purpose of business finance?

  • To minimize operational costs
  • To manage employee salaries effectively
  • To estimate future market trends
  • To acquire and conserve capital funds (correct)

Which of the following best describes fixed capital requirements?

  • Funds needed for upgrading technology
  • Funds required for purchasing fixed assets (correct)
  • Funds needed for day-to-day operations
  • Funds used for holding current assets

How does the nature of a business impact its fixed capital requirements?

  • Only manufacturing concerns need substantial fixed capital
  • All businesses need equal fixed capital regardless of their nature
  • Trading concerns require more fixed capital than large enterprises
  • The amount of fixed capital varies based on business nature (correct)

What typically characterizes working capital requirements?

<p>Funds needed for daily operational expenses (A)</p> Signup and view all the answers

Which business scenario would require more working capital?

<p>A business selling goods on credit (C)</p> Signup and view all the answers

Why might a business require additional funds for technology upgrades?

<p>To reduce production costs (B)</p> Signup and view all the answers

What factors can influence the amount of working capital needed by a business?

<p>Sales turnover and credit sales (B)</p> Signup and view all the answers

What happens to the need for fixed and working capital as a business expands?

<p>It increases due to greater operational scale (C)</p> Signup and view all the answers

Flashcards

Working Capital

Money that a business needs for its day-to-day operations, like paying salaries, buying supplies, and managing short-term expenses.

Fixed Capital

Funds required to buy long-term assets, such as land, buildings, and machinery, that a business uses for its core operations.

Business Finance

The process of obtaining and managing financial resources to meet the needs and objectives of a business.

Fixed Capital Requirements

The financial resources required to acquire assets like land, buildings, and machinery. These assets are typically used for a long period of time.

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Working Capital Requirements

The financial resources needed to cover short-term expenses, such as salaries, inventory, and bills.

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Financial Needs of a Business

The financial needs of a business arise from its operations and growth plans. These needs can be categorized as fixed and working capital requirements.

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Factors Influencing Capital Requirements

The amount of fixed and working capital required by a business can be influenced by factors like the nature of its operations, size, and sales turnover.

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Capital Requirements and Business Growth

As a business grows and expands, its need for both fixed and working capital typically increases. This is due to larger operations, increased production, and potentially new investments.

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Study Notes

Business Finance

  • Business finance deals with acquiring and managing capital to meet business needs.

Financial Needs Categories

  • Fixed Capital Requirements:

    • Funds needed for long-term assets (land, buildings, machinery, equipment).
    • Investment in fixed assets is long-term.
    • The amount of fixed capital varies based on factors like business type, size (e.g., manufacturing needs more than trading). Larger businesses need more fixed capital compared to smaller ones.

  • Working Capital Requirements:

    • Funds for day-to-day operations.
    • Used for current assets (inventory, accounts receivable) and expenses (wages, taxes, rent).
    • The amount required varies. Businesses with credit sales, slow sales turnover, or seasonal inventory needs require more than cash-based businesses with faster turnovers.
    • Growing businesses, upgrading technology, or expanding inventory (for festivities) also increase working capital needs.
    • Meeting debts or relocating also affect working capital requirements.

Importance of Funding Sources

  • Businesses must assess various funding sources to address their evolving financial requirements.

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Description

This quiz covers key concepts in business finance, focusing on the acquisition and management of capital for business operations. Learn about fixed and working capital requirements, their significance, and how varying business sizes influence these financial needs.

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