Long-Term Sources of Business Finance — Flashcards

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Long-term finance refers to funds that are required for a period exceeding one year. These funds are used to meet long-term financial needs such as purchasing fixed assets, modernization, expansion, r…

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Businesses need long-term finance for several reasons: (1) to purchase fixed assets like land, buildings, machinery; (2) to fund major corporate activities like mergers, acquisitions, and modernizatio…

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Retained earnings refer to the portion of a company’s profits that are not distributed as dividends to shareholders but are instead kept (retained) and reinvested in the business. This internal source…

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The merits of retained earnings include: (1) It is a cheap source of capital as no interest or dividend is paid; (2) It enhances financial stability by helping the company face downturns; (3) It benef…

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The limitations of retained earnings are: (1) It is only possible when the company earns high profits consistently; (2) It may lead to shareholder dissatisfaction due to lower dividends; and (3) It ma…

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Equity shares represent ownership in a company. They do not carry any preferential rights regarding dividend or repayment of capital. Dividends are paid only after preference shareholders, and the rat…

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From shareholders' perspective, the benefits are: (1) They are owners of the company; (2) They can earn high returns if the company performs well; (3) Share value can increase in the stock market; (4)…

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From management’s perspective, the advantages are: (1) No charge on assets; (2) No obligation to repay capital during the company’s lifetime; (3) No compulsion to pay dividends; (4) Enhances credibili…