Tag: sources of business finance

Questions Related to sources of business finance

Company may retain a part of the profits called as ______ and utilize it as capital.

long-term and short-term finance sources of business finance business studies

  1. retained earnings

  2. debentures

  3. reserves and surplus

  4. shares

Show answer
Correct Option: A
Explanation:

The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors.

Which of the following is/are the purposes of short term finance?

long-term and short-term finance sources of business finance business studies

  1. It facilitates the smooth running of business operations by meeting day to day financial requirements.

  2. It enables firms to hold stock of raw materials and finished product.

  3. To increase the volume of production at a short notice.

  4. All of the above

Show answer
Correct Option: D
Explanation:

The short-term financial needs of the companies are generally met from the following sources:

  1. Trade Credit.
  2. Consumer Credit.
  3. Installment Credit.
  4. Account Receivable Financing.
  5. Bank Credit

Importance of short term finance.
Other Source businesses depend on short-term finance to continue operations through economic downturns. Without short-term financing, new businesses might never be launched, or growth and expansion might be compromised. Businesses might rely on access to short-term capital in order to obtain equipment, although in certain similar instances long-term financing might apply instead. Short-term loans also facilitate international trade and support commerce between nations.

Which of the following is/are pitfall(s) and trap(s) to be on the lookout for when dealing with short term finance companies?

long-term and short-term finance sources of business finance business studies

  1. Hidden Fees and charges

  2. Upfront fees

  3. Misleading time frames

  4. All of the above

Show answer
Correct Option: D
Explanation:

Many lenders will advertise a low interest rate but will have a huge application fee, valuation fee, documentation fee or commitment fee attached to the loan which ends up making it very expensive. Many lenders will promise that they can fund within a short period of time but end up pushing back deadlines and blame the client when in fact they have never been able to do what they promised.

Inadequacy of short-term funds may even lead to closure of business.

long-term and short-term finance sources of business finance business studies

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Inadequate working capital may be the major causes for closing down the business organization. Due to shortage of working capital, raw materials can not be purchased on time and payment of labor and other expenses can not be made on time. Due to this companies financial reputation will go down and on the same time business cannot run properly.

Which among the following is not the source of short term finance?

long-term and short-term finance sources of business finance business studies

  1. Trade credit

  2. Customers advances

  3. Installment credit

  4. Equity financing

Show answer
Correct Option: D
Explanation:

Equity finance is a method of raising fresh capital by selling shares of the company to public, institutional investors, or financial institutions. The people who buy shares are referred to as shareholders of the company because they have received ownership interest in the company. It is one of sources of the long term financing.

Which is/are the purpose of long term loan?

long-term and short-term finance sources of business finance business studies

  1. To finance fixed assets.

  2. Expansion of companies.

  3. Provide capital for funding the operations.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Businesses should generally follow the rule of tying the length of their financing to the life of the asset they are financing. So, if a business needs to make a major capital improvement, such as purchasing a piece of equipment for their manufacturing process that will last 10 years, a long-term business loan would be the appropriate type of financing. A short-term business loan would not be appropriate in this case. If a business needs to buy capital equipment, buildings, other businesses, or undertake construction projects, a long-term loan is the way to go.

The following are the different types of inventories _______________________.

long-term and short-term finance sources of business finance business studies

  1. Flabby inventory, profit making inventory and excessive inventory

  2. Safety inventory and Normal inventory

  3. Both (a) and (b)

  4. Profit making inventory and safety inventory

Show answer
Correct Option: C

The costliest of long-term sources of finance is __________________.

long-term and short-term finance sources of business finance business studies

  1. Preference share capital

  2. Retained earnings

  3. Equity share capital

  4. Debentures

  5. Capital raised through private placement.

Show answer
Correct Option: A
Explanation:

Preference Share is the Costliest Long - term Source of Finance. The costliest long term source of finance is Preference share capital or preferred stock capital. It is the source of the finance. When it is compared to other source of long term sources.

Which of the following is most appropriate beginning for a fund raising press release?

long-term and short-term finance sources of business finance business studies

  1. Asking for cheques towards payment

  2. Inviting for money

  3. Explaining the purpose

  4. None of the above

Show answer
Correct Option: A
Explanation:

Asking for cheques towards payment is most appropriate beginning for a fund raising press release. It helps to raise and maintain the profile of the organization.

Decisions for raising funds from long-term sources are called ___________.

long-term and short-term finance sources of business finance business studies

  1. capital structure decision

  2. investment decisions

  3. dividend decisions

  4. investment of funds

Show answer
Correct Option: A
Explanation:

One of the important decisions under financial management relates to the financing pattern or the proportion of the use of different sources in raising funds.

Capital structure refers to the mix between owners and borrowed funds.
Decisions for raising funds from long-term sources are part of capital structure decisions.