GNDU B.Com (Bachelor of Commerce)

Chapter 5: Business Financing, Stock Exchange and Business Combination

Summary

Finance is the lifeblood of business, needed to acquire fixed assets, meet working-capital requirements and fund expansion. The importance of finance lies in its role in establishing, running and growing an enterprise. Firms raise finance by various methods: ownership capital through the issue of equity and preference shares and ploughing back of profits, and borrowed capital through debentures, loans from banks and financial institutions, public deposits and trade credit. The choice depends on cost, risk, control and the period for which funds are needed. The stock exchange is an organised market where existing securities such as shares and debentures are bought and sold. Its functions include providing liquidity and marketability to securities, helping in the mobilisation of savings, the pricing of securities and the safety of dealings. There are recognised stock exchanges in India whose working is governed by rules and by the regulator, which protects investors and ensures fair trading. Business combination refers to the coming together of firms to gain advantages of scale, eliminate competition or secure control over a market. Its causes include the desire to cut competition, achieve economies, gain stability and secure markets; its types range from horizontal and vertical to lateral and diagonal combinations and may take forms such as associations, trusts and holding companies. Combinations can strengthen efficiency but may also lead to monopoly tendencies, which is their main adverse effect.

Key terms

Important questions

Practice quiz