Class 11 Business Studies - KERALA
Sources of Business Finance
The chapter 'Sources of Business Finance' explores the financial needs of business enterprises and identifies various avenues for raising funds. It classifies sources based on period (long-term, medium-term, and short-term), ownership (owners' funds and borrowed funds), and generation source (internal and external sources). Understanding these options is vital for students as it forms the backbone of financial management. In the Kerala SCERT Class 11 board exams, this chapter frequently features in both objective and descriptive sections, testing students' ability to compare different financial instruments like equity shares, debentures, and trade credit.
Start Learning FreeKey Concepts
Owners' Funds
Funds provided by the owners of the business, such as equity shares and retained earnings, which remain invested permanently and provide risk capital.
Borrowed Funds
Funds raised through loans, debentures, bonds, or public deposits that carry an obligation to pay a fixed rate of interest and principal amount.
Retained Earnings
A portion of net profits kept back in the business for future use, also known as ploughing back of profits.
Trade Credit
Credit extended by one trader to another for the purchase of goods and services, serving as a vital short-term source of finance.
Global Depository Receipt (GDR)
An instrument issued abroad by an Indian company to raise funds in foreign currencies, traded on foreign stock exchanges.
Important Formulas
Board Exam Info
In the Kerala (SCERT) Class 11 Business Studies examinations, this chapter typically carries around 8 to 12 marks. Questions frequently include short-answer questions differentiating between owners' and borrowed funds, and essay-type questions detailing the merits and limitations of specific sources like equity shares, debentures, or commercial paper.
Frequently Asked Questions
What is the main difference between equity shares and debentures?
Equity shareholders are the owners of the company and receive fluctuating dividends, whereas debenture holders are creditors who receive a fixed rate of interest regardless of profit.
Why is retained earnings considered a permanent source of finance?
Retained earnings are undistributed profits generated internally and ploughed back into the business, meaning they do not involve any repayment obligation or external dilution of control.
What are short-term sources of business finance?
Short-term sources are funds required for a period not exceeding one year, such as trade credit, bank overdrafts, cash credit, and commercial paper.
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