SOURCES OF BUSINESS FINANCE Class 11 PDF

sources of business finance CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE Business finance refers to the requirements of funds by business to carry out its various activities "Finance is the b...

sources of business finance CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE Business finance refers to the requirements of funds by business to carry out its various activities "Finance is the blood for the Body of business". Need for finance Fixed capital Growth & requirements Expansion Working capital requirement Sources of finance (on the basis of ownership) Owner's fund Borrowers fund Contributed by owners Loans /credit No liability to pay back Liability to pay Permanent capital CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE Sources of owners Fund Equity shares Retained earning Preference shares 1. Equity Shares (long term finance) "Shares are the smallest unit in which the share capital of a company is divided" Equity shares are the most important and most common source of raising long term finance. Equity shareholders does not get a fixed dividend (Share of profit) but are paid on the basis of earning by the company. Features Source of permanent capital (No fixed liability to return or to pay divided) Primary risk bearer (if company suffers loss, they bears it as they were the last to get paid) Control {they have voting rights} High profit (in case the company earns more) Basis for loans (they improves credit worthiness) Claim over residual income (They get share in the left-over income of the company, ie.. after paying all dues) SMALL BUISNESS AND EN. (BUSINESS) CLICK HERE CLASS 11 BUSINESS SAARE NOTES EK SAATH DOWNLOAD OUR MOBILE APPLICATION NOW www.thegauravjain.com  NOTES SOURCES OF BUSINESS FINANCE 2. Preference Shares (long term) They are those shares who have preference over the payment of dividend and repayment (in case of winding up) They have fixed rate of Return Features Fixed Rate of Return No voting Right Hybrid security (Equity + Debentures) Preferential right of Repayment) Less risk (as fixed dividend is certained) (3) Retained earning (use of firm saving) Self financing or plouging Back of profit" It refers to the amount of undestributed profits after making payment of dividend & taxes Features Long & Medium term finance Permanent source of fund Freedom of use (as it is generated internally) Provides support ( in case of funding crunch) Source for risky investments FOLLOW US ON INSTAGRAM @gaurav_jainofficial CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE Sources of Borrowers fund Trade credit Loan from Financial institutions Public Debentures deposits Commercial Inter corporate banks deposits (ICD) 1. Trade credit (Short term) "Credit given by one trader to another for the purchase of goods & services" Appears in the books with the name of "creditors" The volume and period of credit allowed depends on the reputation, volume of purchase and financial position of the purchaser Generally it ranges b/w 3 to 6 months Features Easily available Flexible (no strict rules & regulation) No floatation cost (ie....cost of arranging finance) FORMS OF MARKET (ECONOMICS) CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE 2. Public deposits (Medium term) Deposits raised by the company directly from the public Rate of Interest offered > that offered on Bank deposit Company places an advertisement and any member can fill-up the prescribed form and deposit money Features Un-secured [company does not mortgage any asset] Medium term (6 month to 3 year] Economical Limited fund (P.D should not exceed 25% share capital & free reserves) Easy method (Just place an advertisement) 3. Debentures Bonds (long term) It refers to an instrument of a company evidencing a debt ,which bears a fixed rate of interest and the company promises to repay them at a future date Holder of Debentures are called as Debenture holders (creditors for firm) Most common source of "Borrowers fund" Features Borrowers fund Fixed rate of interest Repayment (on maturity) No voting rights CLASS 11 BUSINESS SAARE NOTES EK SAATH DOWNLOAD OUR MOBILE APPLICATION NOW www.thegauravjain.com  NOTES SOURCES OF BUSINESS FINANCE Trustee when large numbers of debentures are sold to general public then usually a trustee is appointed, Trustee can be a Bank / financial institution who is appointed to ensure that the borrowing firm fulfill its contractual obligations 4. Commercial Bank (Short & Medium term) Bank gives loans to all sizes of firms and also many ways, like cash credit, overdraft, term loans, letter of credit etc. Features Flexible source Generally short period Restrictions on use of funds (by banks) Asset mortgage (against fund) Detailed instigation by Banks 5. Loan from financial institutions (long term) Government has established a number of financial institution across the country to supplement financial support required by the firms. They provide financial assistance (both owned & loan find) and also gives guidance to industries and Business enterprise They are also known as lending institutions or development Bank FREQUENCY DIAGRAM (STATISTICS) CLASS 11 BUSINESS  NOTES SOURCES OF BUSINESS FINANCE Features Long term finance Managerial advice Provides owned fund also (invest in shares) Underwriters (on public issue) Loan in foreign current (to import) in b/w firms (6) Inter-corporate, deposits (Short term) deposit made by one company with another company. ie.....purchasing securities of the company, giving loans to other company Types 3 months deposits call deposits 12% p.a. interest 10% intrest 6 months deposits commonly used deposits can be withdrawn by 15% annual interest to overcome short term lender by giving one financial problem day notice It is free from legal & Bureaucration Features Secrecy (not known by public) Un secured (high risk) Hight rate of return Not for long term finance Free from legal problems RECTIFICATION OF ERRORS (ACCOUNTS) CLASS 11 BUSINESS  NE SHOT THE GAURAV JAIN BEGINNER ADVANCED SOURCES OF BUSINESS FINANCE CLASS 11 WHATSAPP CHANNEL FOR NOTES AND IMPORTANT QUESTIONS 7690041256 YE LE BAALAK... 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