How can different sources of funds help a business achieve its financial objectives? - HSC - SSCE Business Studies - Question 27 - 2012 - Paper 1
Question 27
How can different sources of funds help a business achieve its financial objectives?
Worked Solution & Example Answer:How can different sources of funds help a business achieve its financial objectives? - HSC - SSCE Business Studies - Question 27 - 2012 - Paper 1
Step 1
Sources of Funds: Definition and Importance
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Answer
Different sources of funds, such as equity finance, debt finance, retained earnings, and grants, provide the necessary capital for businesses to operate and grow. Understanding each source's characteristics helps businesses choose the right mix to align with their financial goals.
Step 2
Equity Financing
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Equity financing allows businesses to raise capital by selling shares. This can be beneficial as it does not require repayment and often allows for flexible use of funds, which can support expansion and innovation, thus achieving financial growth.
Step 3
Debt Financing
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Debt financing, like loans and bonds, provides immediate cash flow. It helps businesses manage short-term financing needs while fostering long-term investments. If managed well, the leverage effect can enhance profitability, aiding in reaching financial objectives.
Step 4
Retained Earnings
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Retained earnings serve as an internal source of funding, allowing a business to reinvest profits into operations. This strategy enhances capital without incurring additional debt, leading to sustainable financial growth.
Step 5
Grants and Subsidies
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Grants and subsidies from various government and non-government organizations can provide financial support without the obligation of repayment. These funds can be crucial for startups and small businesses to achieve their initial financial objectives.
Step 6
Conclusion
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In summary, utilizing a mix of these funding sources aids businesses in achieving financial objectives through effective capital management, risk mitigation, and fostering growth opportunities.
