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TOPIC: RESOURCES (sources of finance-Equity and Preference)

NOTES:

Business finance:

Business finance refers to the process where in the capital funds are acquired and utilized so that the
financial requirements are met and the overall business objectives are attained.

Capitalization: It is the long-term funding that allows a business firm to operate Capital Structure: “The
makeup of a firm’s capitalization” is capital structure. (OPM) OTHER PEOPLE’S MONEY-sources of
finances from other sources.

The long-term fund contributed by the shareholders and creditors to a business is called as
capitalization.

The funds are invested in the form of:

 Debentures
 Free reserves
 Long term loans
 Shares
Capital Structure
The long term funds that include different types of funds like
 Bonds
 Debentures
 Loans
 Reserves
 Share Capital
whether borrowed or invested by the entrepreneur himself/herself is known as capital
structure.
While raising the finance for the business, which important factors should be considered in
decision making.
The following important factors should be considered in decision making while raising the
finance for the business.
Amount of finance needed: The finance raised should neither be excessive nor it should
be insufficient.
Term:
 The term could be
 Short term: upto a period of 1 year to meet the working capital.
 Medium term: From 1 to 5 years to proceed with the modernization needs.
 Long term: More than 5 years to