Q.Define Business Finance.
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Start your 14-day free trial to unlock the full solution →Business finance is the money/capital required for establishing and running a business, covering both fixed and working capital needs. Equity shares are permanent ownership capital carrying voting rights, a residual/variable dividend, and the highest risk-reward among a company's securities.
Part 1 - Business Finance
Business finance refers to the money and credit employed in business — the funds required to establish a business, carry on its day-to-day operations, and finance expansion/diversification. It covers:
- Fixed capital requirements — funds needed for acquiring fixed assets like land, building, plant and machinery.
- Working capital requirements — funds needed for day-to-day operations such as purchase of raw materials, payment of wages and meeting other short-term expenses.
Every business, whatever its size or nature, needs finance at every stage — from setting up to expansion — making financial management an essential business function.
Part 2 (OR) - Equity Shares and their characteristics
Equity shares (also called ordinary shares) are shares that do not carry any preferential rights with regard to the payment of dividend or repayment of capital; their holders are the real owners of the company.
Characteristics:
- Ownership and voting rights — equity shareholders have voting rights on all matters and can participate in the management of the company (e.g. electing directors).
- Variable/residual dividend — dividend on equity shares is paid only after preference dividends and other fixed charges are met, and the rate is not fixed — it depends on the profits available and the board's decision; in a loss year, no dividend may be paid at all.
- Permanent capital — equity capital is not returned during the lifetime of the company (except on winding up); there is no maturity date. …
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