Question

"A business organization requires both long term and short term capital which can either be on the form of ownership capital and borrowed capital " comment upon the statement with hypothetical example

Answer 1

when you are running a business during every transaction you are buying or selling goods so money is required as a liquid asset.when you are investing or taking loan long term assets are mortgaged with financial institutions to borrow money.

Answer 2

The long term capital is that type of capital which is used for long term gains like building structures and other assets. The short term capital include cash and other running material which is used to run the day-to-day business of organisation and it also include other quick assets.

Ownership capital includes the money invested by business partners or stake holders or share holders while as borrowed capital includes loan which has been borrowed and is to be paid back.

An effective organisation requires both long term, short-term, ownership and borrowed capital.

Hypothetical example :

Two businessmen established a Mobile phone factory. The infrastructure of factory is long-term capital. The running cash is short-term capital. The money these two invested is ownership capital. They were short of money to run their business, so they took loan and this loan becomes the borrowed capital.