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Answer 5. Retained earnings are considered a preferable and best source of finance than other sources of finance because of the advantages that are associated with retained earnings as a long-term source of finance.
Some of these benefits are:
i.Cheaper than External Equity. Retained earnings are cheaper than external equity because the floatation costs, brokerage costs, underwriting commission are other issue expenses are eliminated.
ii. Reduced burden- It helps in reducing the burden of unexpected losses by acting act as a cushion at the time of crises.
iii. Permanent source of finance- These funds remain invested in the business for longer periods.
iv. Ready Availability. Being an internal source, these earnings are readily available to the management and directors don't have to ask outsiders for finance.
v. No Ownership Dilution. Relying on retained earnings eliminates the fear of ownership dilution and loss of control by the existing shareholders.
vi. Increased price of equity shares- High retained earnings may lead to an increase in the price of equity shares.
Answer 6. Finance is very much important for every business ( small, medium or large businesses). As blood is important for body of living beings,finance is important for business to survive.That is why finance is called life blood of any business.
Money is required for meeting day to day expenses, for purchasing assets etc.The business cannot operate unless adequate funds are available to it. Importance of finance in business are as follows :
1. For purchases of assets like plant, machinery, furniture and fixed assets.
2. Funds are required for day to day operations like the purchase of raw material, payment of salaries and other expenses, etc.
3. For initial starting of the business, funds are required.
Regards
Answer 5. Retained earnings are considered a preferable and best source of finance than other sources of finance because of the advantages that are associated with retained earnings as a long-term source of finance.
Some of these benefits are:
i.Cheaper than External Equity. Retained earnings are cheaper than external equity because the floatation costs, brokerage costs, underwriting commission are other issue expenses are eliminated.
ii. Reduced burden- It helps in reducing the burden of unexpected losses by acting act as a cushion at the time of crises.
iii. Permanent source of finance- These funds remain invested in the business for longer periods.
iv. Ready Availability. Being an internal source, these earnings are readily available to the management and directors don't have to ask outsiders for finance.
v. No Ownership Dilution. Relying on retained earnings eliminates the fear of ownership dilution and loss of control by the existing shareholders.
vi. Increased price of equity shares- High retained earnings may lead to an increase in the price of equity shares.
Answer 6. Finance is very much important for every business ( small, medium or large businesses). As blood is important for body of living beings,finance is important for business to survive.That is why finance is called life blood of any business.
Money is required for meeting day to day expenses, for purchasing assets etc.The business cannot operate unless adequate funds are available to it. Importance of finance in business are as follows :
1. For purchases of assets like plant, machinery, furniture and fixed assets.
2. Funds are required for day to day operations like the purchase of raw material, payment of salaries and other expenses, etc.
3. For initial starting of the business, funds are required.
Regards