Business Finance
* Business Finance
* Working Capital
* Islamic Finance
* Sources of Industrial Finance
Q.1. Discuss the principles of financing.
OR
State the importance and sources of short-term finance.
Introduction
Finance is required for business for the purpose of production and distribution of goods and services. No business, big or small can be run without finance. It is the life blood of business organizations. Money is needed to start the business. It is required to keep the business going and to expand the business. For production of goods and services we need material, machines, space, energy and technical know-how. For all these things we require finance. Finance is also needed for getting the goods from producer to consumer. The wholesaler and retailers need money for buying goods from different sources. Even consumer wants money to meet his requirements.
In modern large scale business with complex methods of production and distribution finance is used for various purposes. It is necessary for buying fixed assets such as, building, machinery, raw materials, labour and other expenses to convert the raw material into finished goods. It is also needed for meeting the other business operating expenses.
Finance may be defined as the provision of money at time it is needed. By business finance we mean finance needed by the business in different situations.
According to George Terry "Finance consists of providing and utilizing the money, capital rights, credit and funds of any kind which are employed in the operation of an enterprise." So business finance means investing borrowing and spending of money in proper manner for the operation of business. Importance of finance cannot be ignored for the success of business. No business can run smoothly without the finance. There is always a need of sufficient amount of capital to achieve the desired results from the business operation.
In olden days not much finance was needed owing to the limited and simple nature of production and distribution of goods. Today the modern business operation became more complex due to specialization, division of labour and mechanization to produce goods at large scale. Goods are now produced in anticipation of demand. This has increased the importance of finance in the modern business.
Principals of Financing
Generally, business finance is obtained by two means. Firstly, the owner of business himself introduces capital to form a business, Secondly, finance is obtained through borrowing from the people outside the organisation who provide finance on the basis of the principals of safety, profitability and liquidity. These principals are described below:
1. Principal of Profitability
An investor must employ funds in useful and profitable channels. He must think many times that money invested in a business should not become bad or uncollectable. He should not lend to a borrower with whom remuneration may be much, but also equally risky. On the other hand lender should prefer a borrower who is offering a higher rate of interest or profit on comparatively lesser risk.
2. Principal of Safety
The money which will be employed must be secured. Therefore, an investor must be very careful and ensure that his money is in safe hands where the risk of losses does not exist. He must ensure that the borrower is a person of character and will repay the money borrowed, including the profit or interest thereon. He must also see the capacity of borrower to repay the money borrowed. He must also consider whether amount invested for is reasonable in relation to the borrower's own investment.
3. Principle of Easy Recovery
An investor must consider the possibility of easy recovery of funds invested in a business. He always invest money where he is assured of the immediate recovery. Investment in company shares and loans from banks and financial institutions are the examples of investment on the basis of this principle.
Types of Finance
On the basis of the purpose for which capital is required, finance may be classified into long term finance and short term finance.
Long Term Finance
The long term finance refers to the amount required for acquiring fixed assets like machinery, land, building, furniture and equipments etc. These assets remain in use for a long period and to acquire these long term finance is needed which is sunk in the business permanently or for a long term and is not available for immediate conversion into cash.
The amount of long term capital required by a concern depends on the nature and size of the business. Long term finance is utilized for establishing a new business or for expanding an existing business and to replace the old fixed assets by new assets or to acquire the benefits of new inventions, methods and technologies. Long term capital is invested for ten or more years.
* Business Finance
* Working Capital
* Islamic Finance
* Sources of Industrial Finance
Q.1. Discuss the principles of financing.
OR
State the importance and sources of short-term finance.
Introduction
Finance is required for business for the purpose of production and distribution of goods and services. No business, big or small can be run without finance. It is the life blood of business organizations. Money is needed to start the business. It is required to keep the business going and to expand the business. For production of goods and services we need material, machines, space, energy and technical know-how. For all these things we require finance. Finance is also needed for getting the goods from producer to consumer. The wholesaler and retailers need money for buying goods from different sources. Even consumer wants money to meet his requirements.
In modern large scale business with complex methods of production and distribution finance is used for various purposes. It is necessary for buying fixed assets such as, building, machinery, raw materials, labour and other expenses to convert the raw material into finished goods. It is also needed for meeting the other business operating expenses.
Finance may be defined as the provision of money at time it is needed. By business finance we mean finance needed by the business in different situations.
According to George Terry "Finance consists of providing and utilizing the money, capital rights, credit and funds of any kind which are employed in the operation of an enterprise." So business finance means investing borrowing and spending of money in proper manner for the operation of business. Importance of finance cannot be ignored for the success of business. No business can run smoothly without the finance. There is always a need of sufficient amount of capital to achieve the desired results from the business operation.
In olden days not much finance was needed owing to the limited and simple nature of production and distribution of goods. Today the modern business operation became more complex due to specialization, division of labour and mechanization to produce goods at large scale. Goods are now produced in anticipation of demand. This has increased the importance of finance in the modern business.
Principals of Financing
Generally, business finance is obtained by two means. Firstly, the owner of business himself introduces capital to form a business, Secondly, finance is obtained through borrowing from the people outside the organisation who provide finance on the basis of the principals of safety, profitability and liquidity. These principals are described below:
1. Principal of Profitability
An investor must employ funds in useful and profitable channels. He must think many times that money invested in a business should not become bad or uncollectable. He should not lend to a borrower with whom remuneration may be much, but also equally risky. On the other hand lender should prefer a borrower who is offering a higher rate of interest or profit on comparatively lesser risk.
2. Principal of Safety
The money which will be employed must be secured. Therefore, an investor must be very careful and ensure that his money is in safe hands where the risk of losses does not exist. He must ensure that the borrower is a person of character and will repay the money borrowed, including the profit or interest thereon. He must also see the capacity of borrower to repay the money borrowed. He must also consider whether amount invested for is reasonable in relation to the borrower's own investment.
3. Principle of Easy Recovery
An investor must consider the possibility of easy recovery of funds invested in a business. He always invest money where he is assured of the immediate recovery. Investment in company shares and loans from banks and financial institutions are the examples of investment on the basis of this principle.
Types of Finance
On the basis of the purpose for which capital is required, finance may be classified into long term finance and short term finance.
Long Term Finance
The long term finance refers to the amount required for acquiring fixed assets like machinery, land, building, furniture and equipments etc. These assets remain in use for a long period and to acquire these long term finance is needed which is sunk in the business permanently or for a long term and is not available for immediate conversion into cash.
The amount of long term capital required by a concern depends on the nature and size of the business. Long term finance is utilized for establishing a new business or for expanding an existing business and to replace the old fixed assets by new assets or to acquire the benefits of new inventions, methods and technologies. Long term capital is invested for ten or more years.