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Sources of Fund Video Lecture - Commerce
FAQs on Sources of Fund Video Lecture - Commerce
| 1. What are the main sources of fund for businesses? |  |
Ans. The main sources of fund for businesses include equity financing, debt financing, retained earnings, grants, and venture capital. Equity financing involves selling ownership shares in the company to investors, while debt financing refers to borrowing money from lenders. Retained earnings are profits that are reinvested back into the business. Grants are non-repayable funds provided by governments or organizations for specific purposes. Venture capital involves investment from firms or individuals in exchange for equity stake in a high-potential startup.
| 2. How does equity financing work as a source of fund? | |
Ans. Equity financing works by selling ownership shares or stock in a company to investors. Investors provide funds in exchange for a portion of ownership, which entitles them to a share of the profits and a say in business decisions. This source of fund does not require repayment like debt financing, but it dilutes the ownership of existing shareholders. Equity financing can be obtained through private placements, initial public offerings (IPOs), or crowdfunding platforms.
| 3. What are the advantages and disadvantages of debt financing? | |
Ans. The advantages of debt financing include the ability to retain full ownership and control of the business, as debt does not involve selling ownership shares. Debt financing also allows businesses to deduct interest payments as a tax expense. However, the main disadvantage is the obligation to repay the borrowed amount with interest, which can be challenging if the business faces financial difficulties. Additionally, excessive debt can lead to higher interest rates, decreased creditworthiness, and potential bankruptcy.
| 4. How can businesses use retained earnings as a source of fund? | |
Ans. Retained earnings are profits that are not distributed to shareholders as dividends but are reinvested back into the business. Businesses can use retained earnings as a source of fund by allocating them towards capital expenditures, research and development, expansion projects, debt reduction, or paying off dividends in the future. This source of fund allows businesses to finance growth and strengthen their financial position without relying on external financing.
| 5. What is venture capital and how does it work as a source of fund? | |
Ans. Venture capital is a form of financing provided to high-potential startups or early-stage companies by firms or individuals called venture capitalists. These investors provide funds in exchange for equity stake in the company. Venture capitalists often seek significant returns on their investment and actively participate in the company's management and decision-making processes. This source of fund is typically used by businesses with innovative ideas or disruptive technologies that have the potential for rapid growth and high profitability.
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Nov 16, 2024 Last updated |
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