Tag: business studies

There are two types of cost that should be taken into account while deciding about the source of funds to be used for an organization. The two types of cost include explicit and implicit cost of the organization.

The financial strength of a business is a key determinant as finance is the life blood of any business. Finances are required by a company to carry out various activities. They can be classified into long-term capital needs and working capital needs.

Short term borrowings offer the benefit of reduced cost due to reduction of idle capital. Short term borrowings refers to the debt which is obtained for an year or less than a year.

Long-term borrowings are generally used for fixed capital needs like plant & machinery, buildings and projects. They are borrowings which exceed 5 years or more. Hence, long-term borrowings are considered a necessity on many grounds.

Communities and governments are closely tied external stakeholders- this is a true statement.External stakeholders belong to the entities outside the business organization. Officials and suppliers are also external stakeholders.

 An investor contributes asset in a form of capital or equity. Investors invests capital or wealth in any company or financial market to receive some financial gain in return.

Maximizing shareholder value is a very limited concept and distracts everyone from what the purpose of a company is or should be- this is a true statement. Maximizing the number of shareholders should be the purpose of a company.

Creditors are the external stakeholders of a company- this is a true statement since creditors belong to the entities outside the business organization. Like creditors, officials and suppliers are also external stakeholders.