Class 11 Business Studies - ODISHA
Sources of Business Finance
The chapter 'Sources of Business Finance' explores the various ways business enterprises raise funds to meet their short-term, medium-term, and long-term financial requirements. Finance is considered the lifeblood of any business, necessary for establishment, daily operations, and expansion. For Odisha BSE Class 11 students, this chapter is crucial for board exams as it forms the foundational understanding of corporate finance, distinguishing between ownership funds like equity shares and borrowed funds like debentures and bank loans, which frequently appear in both objective and long-answer questions.
Start Learning FreeKey Concepts
Business Finance
Money required for carrying out business activities, including promotion, day-to-day operations, and expansion.
Owners' Funds
Funds provided by the owners of the enterprise, such as equity shares, retained earnings, and preference shares, which do not need to be refunded during the life of the company.
Borrowed Funds
Funds raised through loans, debentures, public deposits, and bonds that carry an obligation to pay interest and repay the 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 an important source of short-term finance.
Commercial Paper
An unsecured promissory note issued by highly rated firms to raise short-term funds at a lower interest rate than commercial banks.
Important Formulas
Board Exam Info
In the Odisha (BSE) Class 11 Business Studies examination, this chapter typically carries around 8 to 12 marks. Questions frequently include short-answer questions differentiating between owners' and borrowed funds, and long-answer questions detailing the merits and limitations of specific sources like equity shares or debentures.
Frequently Asked Questions
What is the difference between owners' funds and borrowed funds?
Owners' funds provide long-term capital and voting rights without the obligation of repayment, whereas borrowed funds create a legal obligation to pay regular interest and repay the principal amount within a specific period.
Why is equity share capital considered permanent capital?
Equity share capital is not refunded during the lifetime of the company; it can only be refunded when the company goes into liquidation.
What are the main sources of short-term finance?
The main sources of short-term finance include trade credit, commercial banks (loans and cash credit), factored receivables, inter-corporate deposits, and commercial paper.
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