Anu has been successful running a soft skills training company for the five years in Bangalore. Her company has become popular and enjoys a good reputation in the city. She now plans to start a chain of skills training centers and has identified four strategic places for the same in the city. Till now she has been managing all the financial requirements of her business through the profits made in her business. However, in order to implement her expansion plans funds will have to be raised externally. In the context of the above: (a) Till now she has been managing all the financial requirements of her business through the profits made in business. Name the source of the funds being mentioned in the statement and state it's any three merits. (b) Suggest any external source of funds that Ann can use to finance her expansion plans. Also give any two features of such a source of finance.
Answers
Answer:
(a) it was retained earning
(b) trade credit and debentures
(a) The source of finance mentioned in the statement is Retained earnings of the owner's fund.
Retained earnings are the total net profit earned and saved by the owner of the business after all business operations. Merits of retained earnings are:-
1) If your company has more retained earnings, it will make the financial situation of your company look better.
2) It helps your company to be financially stable when suffering from unexpected losses.
3) These earnings can be reinvested in the business for further growth and expansion.
(b) Bank loans.
Anu can take a loan from a bank to implement her expansion plans. Two features of a bank loan are:-
1) The interest charged by bank loans differs from bank to bank according to their policies. The interest can be fixed or variable.
2) Banks provide loans on basis of some kind of collateral.