1. Business Finance
Finance is the study of funds management. The general areas of finance are business finance, personal finance (private finance), and public finance

2. Learning Objectives To understand the concept of business finance.
What is importance of finance in operation of business?
What are types of business finance?
What are sources of business finance?

3. Business Finance According to B.O.Wheeler
Business Finance is defined as that business activity which is concerned with the acquisition & conversation of capital funds in meeting the financial needs & overall objectives of business enterprise”.
Financial Needs of Business
Purchase of Fixed Assets
Purchase of Current Assets
Preliminary Expenses
Cost of Financing
Selling on Credit

4. Kinds of Finance Fixed Capital or Long Term Capital
Circulating Capital Or
Working Capital

5. Working Capital
Working capital is the amount of funds invested in the current assets of a business. It is a short term capital.
Types of Working Capital
Revolving Capital
As the capital is repeatedly invested, recovered and reinvented in a going business.
Permanent or Regular Working Capital
There is constant need of minimum amount of cash for a running business.
Working capital = current assets – current liabilities

6. Factors Affecting Working Capital
Nature of the Business
Size of the Business
Length of period of manufacture
Methods of Purchase & Sale of Commodities
Converting Working Assets into Cash
Seasonal Variation in Business
Size of Labor Force
Price level changes
Rate of Turnover
Business Policy

7. Types of Business Finance
Short Term
Finance
Medium Term
Finance
Long Term
Finance

8. Short Term Finance Purpose of Short Term Finance
Sources of Short term Finance
Trade Credit or Open Book Account
Advance from Customers
Cash Credit
Bank overdraft
Discounting of Bills
Bill of Lading
Advantages of Short term Finance
Maintain uninterrupted flow of production
Able to make prompt payments to workers
Hold the stock of finished goods
Inventory of finished goods into receivables

9. Medium Term Finance Sources of Medium Term Finance Commercial Banks
Debentures
Loans from Specialized Credit Institutions

10. Long Term Finance Sources of Long Term Finance Equity Shares
Ploughing back of Profits
Issue of Right Shares
Debentures
Loans from industrial & Financial institutions
Leasing

11. Sources of Company Financing
Sources of Business Funds
Owners Capital
Issue of Equity
Ploughed back profits
Borrowed Capital is Interest Based
Debentures
Bank loans
Loans from Specialized Financial Institutions
Other Long Term Financial Institutions

12. Merits & Demerits of Equity & Debt Financing
Merits of Equity Finance
Permanent source of Capital
No Payment of Interest
Improved Ability to Face Business Recession
Freedom from Financial Worries of Borrowing
Earnings remain with the Firm
Liquidation of Assets
Repayment of Funds
Financial Base
Ability to Borrow
Disadvantages of Equity Financing
Idle cash Balances
Over Capitalization
Weak Control
No advantage of Borrowed Capital

13. Merits & Demerits of Equity & Debt Financing
Creditors Funds & Debt Financing
Advantages of Debt Financing
Expansion of Business
Creditors have no Say
Profit
Tax Advantages
Urgent Current Expenses
Saving the Business from Dissolution
Disadvantages of Credit Financing
Payment of Interest
Creditors can sue the Business
Losses
Attraction of Funds
Dissatisfaction among Shareholders

14. Owners & Creditors Position with Regard to (1)Risk(2)Income(3)Control
Financial Characteristics of Owners Capital
Risk
Income
Control
Financial Characteristics of the Creditors Position
Control in Business

15. Distinction Between Owners Fund & Borrowed Fund
Permanent Capital
Repayment of Principal
Basis of Control
Tax
Profit
Risk Capital
Security of Assets
Priority as to Payment
of Reward
Rate of Return
Fixed Obligation

16. Sources of Interest Free Financing in Pakistan
Equity or Owner’s Financing
Issue of Ordinary Shares
Ploughing back of Profit
Interest Free Financing
Participation Term Certificate
Musharika
Mudarbah
Leasing

17. Interest Based Financing
Interest is paid on the borrowed capital. Interest is the payment made for the use of money.
Why Interest Paid

18. Interest Free Banking Five non interest based investment Musharika
Mudarbah
Participation Term Certificate
Investment on the basis of Equity Participation
Investment Rent Sharing basis

19. Factors Determining the Requirements of Fixed Capital
Nature of Business
Size of Business
Types of Business
Technique of Production
Number of Activities
Non Current Assets
Mode of Acquiring Fixed Assets

20. Sources of Fixed Capital
Owned Capital
Equity Share (Owned Capital)
Ploughing back of Profits (Owned Capital)
Borrowed Capital
Loans from industrial and Financial

21. Ploughing back of Profits
Merits of Ploughing back of Profits
Merits of Ploughing Back of Profits
Advantages to the Company
Shock Absorber
Aids in Smooth Running of Business
Increase in Credit Worthiness of the Company
Self Dependent Company
Expansion & Growth of Business
Redemption of Long Term Debts
Advantages to the Share Holders
Increase in the Value of Shares
Increase in Earning Capacity
Retaining the Control

22. Advantages to the Society
Increase in the Rate of Capital Formations
Rapid Industrialization
Increase in Industrial Capacity
Better Quality of Goods at Reduced Prices
Danger of Ploughing back of Profit
Overcapitalization
Reduces Dividend
Evasion of Taxes
Frustration among Shareholders