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Class notes Business Business Studies- (Poonam Gandhi)-2021-22 Class 11 CBSE, ISBN: 9789389975208
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💰Sources of Business Finance
, Concept of Business Finance
Business finance refers to capital fund or credit funds invested in business.
Business finance may be defined as, planning, raising, managing and controlling all the money used
or capital funds of any kind used in connection with business.
Define:-
Finance is that business activity which is concerned with the acquisition (the act of obtaining or
buying something) and conservation of capital fund in meeting the financial needs and overall
objectives of business enterprise.
Nature and Significance of Business Finance
Every business require some money to start business which is called initial capital.
Business enterprise requires capital and finance for the following purposes:
1. While starting a business, finance is required to procure fixed assets and also for meeting.
day-to-day expenses.
2. To meet the working capital (day-to-day exp) requirement when production process is lengthy.
3. To finance the growth and expansion projects of the company, we need fixed capital.
Adequate finance provides the following benefits to a business concern:
1. The firm can meet its liabilities on time.
2. The firm can carry on its business smoothly.
3. The firm can adopt latest technology and innovative methods of production.
4. The firm can make use of its business opportunities.
5. The firm can face competition more strongly. Trade
cycle
good
6. The firm can replace its assets and machinery whenever necessary.
-> very
7. The firm can face recession and depression period of trade cycle.
recovering, Boom
Recovery
N Recession
I DepressionI w
N
very bad
Ifinance is the life-blood of
business.
a
, Sources of Finance on the Basis of Ownership
Two sources of business finance. These are:
Owners’ Fund
Borrowed Fund
Owners' Fund
Owners' fund refers to the fund contributed by owners as well as accumulated profit of the
company. This fund remains with company and it has no liability to return this fund.
Mains Features of Owners’ Fund:
1. Source of Permanent Capital: The owners' fund remains permanently invested in the business . It
is not refundable like loan. A large part of owners' fund is used for
acquiring fixed assets.
2. Provision of Risk Capital: The owners' fund is also known as risk capital of the business, as the
return on this capital depends upon the rate of earning of the company.
In case of loss, owners may be unable to recover even their original investment. In times of
prosperity high level of return is given on owners' fund. The return on owners' fund varies with
profit earning of the company, that is why, it is called risky capital.
3. No Security Required: No security has to be offered against ownership capital.
4. Sources of Owners’ Fund: The owners' fund comprises of share capital, retained earnings
(accumulated profit).
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