Class 11 Business Studies - TELANGANA
Sources of Business Finance
This chapter explores the various ways businesses raise funds to meet their short-term and long-term financial requirements. For Class 11 Telangana (TSBSE) students, understanding these financial sources is crucial because finance is the lifeblood of any business enterprise. You will learn about owners funds such as equity shares and retained earnings, and borrowed funds like debentures, bank loans, and trade credit. The chapter also highlights the factors influencing the choice of a source of finance. Mastery of these concepts is essential for scoring high in your board exams, as case studies and direct questions regularly appear from this unit.
Start Learning FreeKey Concepts
Equity Shares
The most important source of raising long-term capital where holders are owners of the company and bear the highest risk while enjoying voting rights.
Retained Earnings
A part of net profits that is reinvested in the business instead of being distributed as dividends, also known as self-financing or ploughing back of profits.
Debentures
An instrument issued by a company acknowledging its debt, offering a fixed rate of return to investors who act as creditors of the company.
Trade Credit
Credit extended by one trader to another for the purchase of goods and services, acting as a vital source of short-term finance.
Commercial Paper
An unsecured promissory note issued by highly rated companies to raise short-term funds at a maturity period ranging from 7 days to one year.
Important Formulas
Board Exam Info
In the Telangana (TSBSE) Class 11 Business Studies board exam, this chapter typically carries around 8 to 12 marks. Questions frequently include Very Short Answer Questions (VSAQs) on terms like trade credit or GDRs, Short Answer Questions (SAQs) on differences between shares and debentures, and Long Answer Questions (LAQs) detailing the classification of sources of finance based on time, ownership, and generation source.
Frequently Asked Questions
What is the difference between ownership capital and borrowed capital?
Ownership capital consists of funds provided by the owners of the enterprise (like equity shareholders) with permanent risk and voting rights, whereas borrowed capital consists of funds raised through loans or debentures that carry a fixed return and must be repaid.
Why is retained earnings considered a permanent source of finance?
Retained earnings are internally generated profits ploughed back into the business, meaning the company does not have to pay any interest, floatation costs, or return them to external parties, making them permanently available.
What factors should a business consider while choosing a source of finance?
Key factors include the cost of procurement, financial risk involved, control implications, period of financing, flexibility, and the tax benefits associated with the specific source.
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