Questions and Answers
What is the meaning of business finance?
Funds required by a business to carry out its various activities
What are the fixed capital requirements of an enterprise?
Funds required to purchase fixed assets like land, building, and machinery
What is the classification of sources of funds based on period?
Long-term sources, medium-term sources, short-term sources
What are working capital requirements used for?
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What is the time period for short-term funds?
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Study Notes
Business Finance
- Business finance refers to the management of an organization's financial resources to achieve its objectives
- It involves the acquisition, allocation, and management of funds to meet business needs
Capital Requirements
- Fixed capital requirements refer to the amount of funds required to acquire and maintain fixed assets such as land, buildings, and equipment
- Fixed capital requirements are typically one-time investments with a long-term impact on the business
Classification of Sources of Funds
- Sources of funds can be classified into two categories based on period: long-term and short-term
- Long-term sources of funds include equity shares, debentures, and long-term loans
- Short-term sources of funds include bank overdrafts, short-term loans, and creditors
Working Capital Requirements
- Working capital requirements refer to the amount of funds required to meet the daily operational needs of a business
- Working capital is used to purchase raw materials, pay wages, and meet other expenses necessary to operate the business
Short-Term Funds
- Short-term funds are typically used for a period of less than one year
- Short-term funds are used to finance current assets such as inventory, accounts receivable, and cash
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