sources of business finance class 11 case study

The BST Chapter 8 Class 11 notes signify the meaning and nature of business finance. According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.” The financial needs of a business can be classified into two categories. Disclaimer | (I) only financially sound and highly rated firms can raise money through commercial papers. The main securities used by Indian companies to tap international sources of finance are given below, (i) Loans from Commercial Bank!’;(ii) International Agencies and Development Bank(iii) International Capital Market, The businessman must keep in mind the following factors, (i) Cost involved(ii) Financial capacity of the firm(iii) Form of business organisation(iv) Time period(v) Risk involved(vi) Control(vii) Flexibility(viii) Claim over the assets(ix) Tax benefits. Equity share capital is a prerequisite to the creation of a company. The interest is required to be paid irrespective of the firm earning a profit or incurring a loss. Consequently, such a company can raise funds easily from other sources as well; (iv) As repayment of loan can be made in easy installments, it does not prove to be much of a burden on the business; (v) The funds are made available even during periods of depression, when other sources of finance are not available. A particular source of fund may affect the control and power of the owners on the management of a firm. The dependence of business on certain sources may affect its credit worthiness in the market. (i) Discounting of Bills of Exchange When goods are sold on credit then a supplier generally draws bills of exchange upon customers who are required to accept the same. 1. Further, maturing commercial paper can be repaid by selling new commercial paper; (v) Companies can park their excess funds in commercial paper thereby earning some good return on the same. The commercial paper was introduced in India for the rust time in 1990. Thus, a holder of FCCB has the option of either converting them into equity shares at a predetermined price or exchange rate, or retaining the bonds. External funds may be costly as compared to those raised through internal sources. Class XI Chapter 7 Business Studies, Sources of Business Finance , study notes and study material to learn and revise your chapter. Cases typically present a problem, issue, or challenge that must be addressed or solved for a business to prosper. It provides the basis of expansion and growth of companies. The initial capital contributed by the entrepreneur is not always sufficient to take care of all financial requirements of the business. Owner’s funds means funds that are provided by the owners of an enterprise, which may be a sole trader or partners or shareholders of a company. The financial strength of a business is also a key determinant. Apart from capital, it also includes profits reinvested in the business. Such depository receipts denominated in US dollars are known as Global Depository Receipts (GDR). e.g., equity shares, retained earnings. At the end of the lease period, the asset goes back to the lessor. Here we have provided Exemplar Problems Solutions along with NCERT Exemplar Problems Class 11. Factoring Factoring is a financial service’under which factor renders the following services. Define ploughing back of profits. In addition, many non-banking finance companies and other agencies provide factoring service. Owners Fund Owners fund is also called as Owners Capital or owned capital. Different business units need varying amount of fixed capital depending on various factors such as the nature of business, etc. ... Trade credit may be readily available in case the credit worthiness of the customers is known to the seller; It includes all funds available by way of loans or credit. Ploughed back profits 1. ADRs are bought and sold in American markets like regular stocks. Details About CBSE Class 11 Commerce Business Studies Sources of Business Finance - Business finance is a term that encompasses a wide range of activities Toggle navigation FOR INDIA'S BEST CA CS CMA VIDEO CLASSES CALL 9980100288 OR VISIT HERE Various international sources from where funds may be generated include: (ii) International Agencies and Development Banks: Modern organizations including multinational companies depend upon sizeable borrowings in rupees as well as in foreign currency. (I) Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get lower dividends; (ii) It is an uncertain source of funds as the profits of business are fluctuating; (iii) The opportunity cost associated with these funds is not recognized by many firms. (i) Equity shares with equal rights. Question and solutions on Sources of Business Finance Covers the topic in detail for Class 11th Business Chapter 8 Easy to understand Page 1 of 1 Notesgen is the No. The long-term sources fulfill the financial requirements of an enterprise for a period exceeding 5 years and include sources such as shares and debentures, long-term borrowings and loans from financial institutions. (I) Funds are generally available for short periods and its extension or renewal is uncertain and difficult; (ii) Banks make detailed investigation of the company’s affairs, financial structure etc., and may also ask for security of assets and personal sureties. Where the funds are required for a period of more than one year but less than five years, medium-term sources of finance are used. 1 online platform for all types of online study material. NCERT Solutions Class 11 Business Studies Chapter 8 Sources of business finance. The financial requirements of an enterprise do not end with the procurement of fixed assets. It facilitates the purchase of supplies without immediate payment and is commonly used by business organizations as a source of short-term financing. A company can issue different types of preference shares. (I) as fixed charge instruments, debentures put a permanent burden on the earnings of a company. You will also get idea about the type of questions, you can expect in your Class 11th examination. To get fastest exam alerts and government job alerts in India, join our Telegram channel. (c) Short Term Finance The finance required for a short period upto one year is known as short term finance. ‘Borrowed funds’ on the other hand, refer to the funds raised through loans or borrowings. The difference between the face value of the debenture and its purchase price is the return to the investor. Public deposits can take care of both medium and short-term financial requirements of a business. These are equity shares and preference shares. CBSE guide notes are the comprehensive notes which covers the latest syllabus of CBSE and NCERT. On the basis of ownership, the sources can be classified into ‘owner’s funds’ and ‘borrowed funds’. generated through outsiders such as suppliers; All exercise questions are solved by experts as per NCERT (CBSE) guidelines. (ii) The repayment of investment amount during winding up.Different features of preferences shares are(i) Fixed rate of dividend(ii) No security(iii) Voting rights(iv) Hybrid security. CBSE Class 11 Business Studies Chapter – 8 Important Questions. ... Sources of Business Finance . The capital obtained by issue of shares is known as share capital. Thus, preference shares have some characteristics of both equity shares and debentures. Sources of Business Finance Notes Class 11: Extramarks offers notes & NCERT solutions of Sources of Business Finance for CBSE Class 11. For example, there is a least risk in equity as the share capital has to be repaid only at the time of winding up and dividends need not be paid if no profits are available. The organizations that provide such services include SBI Factors and Commercial Services Ltd., Canbank Factors Ltd., Foremost Factors Ltd., State Bank of India, Canara Bank, Punjab National Bank, Allahabad Bank. Since these are unsecured that is why these are generally issued by companies having a good reputation. Therefore, there is no burden on the company in this respect; (iii) Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a company. The loan is repaid either in lump sum or in installments. Each of the sources has unique characteristics, which must be properly understood so that the best available source of raising funds can be identified. TOPIC – Sources of Business Finance. The factor becomes responsible for all credit control and debt collection from the buyer and provides protection against any bad debt losses to the firm. CBSE Syllabus for Class 11 Tangkhul 2020-21 [Revised], CBSE Syllabus for Class 11 Mizo 2020-21 [Revised], CBSE Syllabus for Class 11 Japanese 2020-21 [Revised], CBSE Syllabus for Class 11 Kashmiri 2020-21 [Revised], CBSE Notes Class 12 Biology Human Reproduction. Similarly, some funds are required for day-to-day operations, say to purchase raw materials, pay salaries to employees, etc. No matter how small or large a business is, it needs funds for its day-to-day operations. With the help of Notes, candidates can plan their Strategy for particular weaker section of the subject and study hard. Any person who is interested in depositing money in an organisation can do so by filling up a prescribed form. Commercial Papers Commercial paper is a source of short finance. Another aspect affecting the choice of a source of finance is the flexibility and ease of obtaining funds. (I) Financial institutions follow rigid criteria for grant of loans. About Us | The owner’s capital remains invested in the business for a longer duration and is not required to be refunded during the life period of the business. (I) Preference shares are not suitable for those investors who are willing to take risk and are interested in higher returns; (ii) Preference capital dilutes the claims of equity shareholders over assets of the company; (iii) The rate of dividend on preference shares is generally higher than the rate of interest on debentures; (iv) As the dividend on these shares is to be paid only when the company earns profit, there is no assured return for the investors. (I) Banks provide timely assistance to business by providing funds as and when needed by it. A business person, therefore, has to look for different other sources from where the need for funds can be met. (iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources. Such type of financing is more prevalent in the acquisition of such assets as computers and electronic equipment which become obsolete quicker because of the fast changing technological developments. With the issue of debentures, the capacity of a company to further borrow funds reduces. The internal sources of funds can fulfill only limited needs of the business. The profit available for ploughing back in an organization depends on many factors like net profits, dividend policy and age of the organization. Practice sample question papers … Borrow Fund 1. (iii) Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities. (i) Fixed capital requirement(ii) Working capital requirement. Thus, business firm should choose a source keeping in mind the extent to which they are willing to share their control over business. These CBSE NCERT Class 11 Business Studies workbooks and question banks have been made by teachers of StudiesToday for benefit of Class 11 students. (i) Period Basis On the basis of time period, a business finance can be classified in three categories. A company wishing to invite public deposit places an advertisement in newspapers. Such capital forms the basis on which owners acquire their right of control of management. Candidates who are pursuing in Class 11 are advised to revise the notes from this post. Factors may also offer relevant consultancy services in the areas of finance, marketing, etc. Seasonal businesses that must build inventories in anticipation of selling requirements often need short-term financing for the interim period between seasons. For example, while the dividend on preference shares is not tax deductible, interest paid on debentures and loan is tax deductible and may, therefore, be preferred by organizations seeking tax advantage. CBSE Guide Sources of Business Finance class 11 Notes. The funds required in fixed assets remain invested in the business for a long period of time. GDR is a negotiable instrument and can be traded freely like any other security. Commercial Banks Commercial banks occupy a very important position as they provide funds for different purposes and different periods. For long term finance, sources such as issue of shares and debentures are more appropriate. With the help of Notes, candidates can plan their Strategy for particular weaker section of the subject and study hard. Its regulation comes under the purview of the Reserve Bank of India. Short-term funds are those which are required for a period not exceeding one year. The availability of trade credit depends upon, (i) Nature of the firm(ii) Size of the firm(iii) Status or credit worthiness of the firm, 5. Discounting of bills (with or without recourse) and collection of the client’s debts. Answer: According to Companies Act, a public company can issue two types of shares. Similarly, the purposes for which funds are required need to be considered so that the source is matched with the use. Generally, the cost of CP to the issuing firm is lower than the cost of commercial bank loans; (iv) A commercial paper provides a continuous source of funds. 4. Commercial Paper emerged as a source of short term finance in our country in the early nineties. The financial needs of a business can be categorized as follows: A business can raise funds from various sources. The above NCERT CBSE and KVS worksheets for Class 11 Business Studies will help you to improve marks by clearing Business Studies concepts and also improve problem solving skills. Equity shares are the most important source of raising long term capital by a company. Class 11 Business Studies Sources of Business Finance – Get here the Notes for Class 11 Business Studies Sources of Business Finance. Sources of Finance Companies can raise finance from the following methods. As these institutions aim at promoting the industrial development of a country, these are also called ‘development banks’. The rate of interest charged by banks depends on various factors such as the characteristics of the firm and the level of interest rates in the economy. A business, for example, can generate funds internally by accelerating collection of receivables, disposing of surplus inventories and Ploughing back its profit. For the grant of loan. All Chapter wise Questions with Solutions to help you to revise complete Syllabus and Score More marks in your examinations. Terms of trade credit may vary from one industry to another and from one person to another. For example, issue of secured debentures may affect the interest of unsecured creditors of the company and may adversely affect their willingness to extend further loans as credit to the company. (I) Financial institutions provide long-term finance, which are not provided by commercial banks; (ii) Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms; (iii) Obtaining loan from financial institutions increases the goodwill of the borrowing company in the capital market. While the depositors get higher interest rate than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from banks. The share of NRI deposits in foreign capital is more than 30% and it is increasing continuously. Explain sources of Business finance on the basis of the period. The requirements of funds by business to carry out its various activities are called business finance. The more notable among them include International Finance Corporation (IFC), EXIM Bank and Asian Development Bank. The need for funds arises from the stage when an entrepreneur makes a decision to start a business. In law schools, business law case studies are even present. Trade credit is commonly used by business organizations as a source of short-term financing. Class 11 Important Business Studies Questions. A company generally does not distribute all its earnings amongst the shareholders as dividends. The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit. There are two types of shares normally issued by a company. Equity Shares Equity shares is a common security issued under permanent or owner’s fund capital. Preference shareholders generally do not enjoy any voting rights. BUSINESS STUDIES. A share may also be defined as a unit of measure of a shareholder’s interest in the company. Sources of Business Finance 11th Business CBSE NCERT Chapter 8 Marketing along with videos,solved papers and worksheets.These are helpful for students in doing homework or preparing for the exams Read more about Equ… The owner of the assets is called the ‘lessor’ while the party that uses the assets is known as the ‘lessee’. 13. Class 11 Business Studies Sources of Business Finance have different set of questions. 3. Lessor is called the owner of the assets and lessee hires the assets by paying rent. (I) Receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders; and. the doors of foreign companies and investors were opened to invest In the Indian companies. CLASS –XI . In other words it is a renting of an asset for some specified period. At times additional funds are required for upgrading the technology employed so that the cost of production or operations can be reduced. 1.9 CBSE Class 11 Business Studies-Sources of Business Finance 1.10 CBSE Class 11 Business Studies-Social responsibilities of Business and Business Ethics 2 More related readings For the sake of the candidates we are providing Class 11 Mock Test / Practice links below. Candidates can also check out the Key Points, Important Questions & Practice Papers for various Subjects for Class 11 in both Hindi and English language form the link below. The types of loans and services provided by banks vary from country to country. But schools, business books, and academic settings are not the only ones that use business case studies. Firms of all sizes can approach commercial banks. They enjoy the reward as well as bear the risk of ownership. Debentures are an important instrument for raising long term debt capital. Debentures are called creditorship securities because debenture holder are called creditors of a company. Lease Financing Leasing is a contract between lessor and lessee. As […] NCERT Class 11 Business Studies Books are provided in PDF form so that students can access it at any time anywhere. As the debt is totally unsecured, the firms having good credit rating can issue the CP. Important Questions for Class 11 Business Studies are outlined by the subject matter experts from the latest edition of CBSE books. 11. Trade Credit It refers to an arrangement whereby a manufacturer is granted credit from the supplier of raw materials, inputs spare parts etc. Different features of public deposits are, (i) Unsecured(ii) Finance of working capital(iii) Time period(iv) Simple procedure to raise(v) Repayment. For example, as equity share holders enjoy voting rights, financial institutions may take control of the assets or impose conditions as part of the loan agreement. In order to start business, funds are required to purchase fixed assets like land and building, plant and machinery, and furniture and fixtures. Banks extend loans to firms of all sizes and in many ways, like, cash credits, overdrafts, term loans, purchase/discounting of bills, and issue of letter of credit. Candidates who are ambitious to qualify the Class 11 with good score can check this article for Notes. The local currency shares of a company are delivered to the depository bank. Meaning, Nature and Significance of Business Finance. The corporate world is full of companies that report their undertakings as case studies. Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. 10. (I) A lease arrangement may impose certain restrictions on the use of assets. The case study will give its reader a clear concept about the different sources of finance. In addition to providing financial assistance, these institutions also conduct market surveys and provide technical assistance and managerial services to people who run the enterprises. These sources include borrowings from commercial banks, public deposits, lease financing and loans from financial institutions. New and moderately rated firms are not in a position to raise funds by this method; (ii) The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time; (iii) Commercial paper is an impersonal method of financing. There is not a single best source of funds for all organizations. (I) Availability of easy and flexible trade credit facilities may induce a firm to indulge in overtrading, which may add to the risks of the firm; (ii) Only limited amount of funds can be generated through trade credit; (iii) It is generally a costly source of funds as compared to most other sources of raising money. Generally, borrowed funds are provided on the security of some fixed assets. The money raised by issue of equity shares is called equity share capital, while the money raised by issue of preference shares is called preference share capital. Financial Institutions Public financial institutions are referred to as lending institutions. It will also help to identify the appropriate sources of finance in some specific categories. The concerning case study is based on a prospectus entrepreneur, John Caird. Equity shares are the most important source of raising long term capital. The FCCB’s are issued in a foreign currency and carry a fixed interest rate which is lower than the rate of any other similar non-convertible debt instrument. Register for Online tuition on to score more marks in CBSE examination. (a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. It is granted to those customers who have reasonable amount of financial standing and goodwill. Thus, there is no tax saving as in the case of interest on loans. QUESTION 1. This case study will also help those who are prospective in business. External sources of funds include those sources that lie outside an organization, such as suppliers, lenders, and investors. The deposits that are raised by organizations directly from the public are known as public deposits. While making the leasing decision, the cost of leasing an asset must be compared with the cost of owning the same. NCERT Class 11 Business Studies Books in English PDF Download. (iv) The lessee never becomes the owner of the asset. A firm may also offer different credit terms to different customers. (I) a commercial paper is sold on an unsecured basis and does not contain any restrictive conditions; (ii) As it is a freely transferable instrument, it has high liquidity; (iii) It provides more funds compared to other sources. The borrower is required to provide some security or create a charge on the assets of the firm before a loan is sanctioned by a commercial bank. Providing information about credit worthiness of prospective client’s etc., Factors hold large amounts of information about the trading histories of the firms. These are long-term sources, medium-term sources and short-term sources. Business simply cannot function without money, and the money required to make a business function is known as business funds. Public issue of debentures requires that the issue be rated by a credit rating agency like CRISIL (Credit Rating and Information Services of India Ltd.) on aspects like track record of the company, its profitability, debt servicing capacity, credit worthiness and the perceived risk of lending. Business should evaluate each of the sources of finance in terms of the risk involved. Also as the dividend is payable only at the discretion of the directors and only out of profit after tax, to that extent, these resemble equity shares. Trade credit is the credit extended by one trader to another for the purchase of goods and services. A fixed rate of interest is paid by the borrowers on such funds. This is known as working capital of an enterprise, which is used for holding current assets such as stock of material, bills receivables and for meeting current expenses like salaries, wages, taxes, and rent. A company can raise funds through issue of debentures, which bear a fixed rate of interest. (I) the procedure of obtaining deposits is simple and does not contain restrictive conditions as are generally there in a loan agreement; (ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions; (iii) Public deposits do not usually create any charge on the assets of the company. Hope these notes helped you in your schools exam preparation. Public Deposits Public deposits refers to unsecured deposits invited from the public. Free PDF download of Important Questions with Answers for CBSE Class 11 Business Studies Chapter 8 - Sources of Business Finance prepared by expert Business Studies teachers from latest edition of CBSE(NCERT) books. Finance, therefore, is called the life blood of any business. Question from very important topics are covered here for NCERT Class 11. Question from very important topics is covered by Exemplar Questions for Class 11. It is issued by one firm to other business firms, insurance companies, pension funds and banks. Debenture holders are, therefore, termed as creditors of the company. All the short cut techniques are out now. Under this, the receivables on account of sale of goods or services are sold to the factor at a certain discount. A portion of the net earnings may be retained in the business for use in the future. A short-term need for example can be met through borrowing funds at low rate of interest through trade credit, commercial paper, etc. A loan on the other hand, has a repayment schedule for both the principal and the interest.

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