Explain the nature and significance of business finance.
Explain the nature and significance of business finance.
Finance is the lifeblood of any business. It refers to the funds required by the business for carrying out various business activities. Availability of adequate funds is essential for the smooth functioning of a business. The capital contributed by the promoters may not be sufficient. Hence, the business firms have to look for other sources from where the fund requirement can be met. The financial requirement of a business can be categorised as follows.
1. Fixed capital requirement: The funds that are invested in the business for a longer period of time are known as fixed capital. Such funds are usually required for starting the business and to purchase fixed assets like land, building, plant and machinery. Different business firms require different amounts of fixed capital depending on various factors such as the nature and size of the business, the number of products produced, etc.
2. Working capital requirement: The funds required for day-to-day operations of the business are known as working capital. Different amounts of working capital are required depending upon various factors. For example, a business firm selling goods on credit or having a slow sales turnover requires to move working capital as compared to a business firm selling goods on a cash basis or having a high sales turnover.
Finance is the lifeblood of any business. It refers to the funds required by the business for carrying out various business activities. Availability of adequate funds is essential for the smooth functioning of a business. The capital contributed by the promoters may not be sufficient. Hence, the business firms have to look for other sources from where the fund requirement can be met. The financial requirement of a business can be categorised as follows.
1. Fixed capital requirement: The funds that are invested in the business for a longer period of time are known as fixed capital. Such funds are usually required for starting the business and to purchase fixed assets like land, building, plant and machinery. Different business firms require different amounts of fixed capital depending on various factors such as the nature and size of the business, the number of products produced, etc.
2. Working capital requirement: The funds required for day-to-day operations of the business are known as working capital. Different amounts of working capital are required depending upon various factors. For example, a business firm selling goods on credit or having a slow sales turnover requires to move working capital as compared to a business firm selling goods on a cash basis or having a high sales turnover.
