Business studies

• Corporate social responsibility refers to a company's commitment to operating in an economically, socially, and environmentally sustainable manner.
• Business finance is the requirement of funds by a business to carry out its various activities
• Financial needs of a business can be categorized as fixed capital requirements and working capital requirements
• Fixed capital requirements involve funds needed to purchase fixed assets like land, building, plant, and machinery
• Working capital requirements are used for holding current assets such as stock of raw material and bills receivables
• Fixed capital is needed for the acquisition of fixed assets like land, building, plant, and machinery
• Working capital is needed to meet the day-to-day expenses of the firm like salaries, wages, taxes, and rent
• Owner's funds are funds required by the company to meet its day-to-day expenses or to invest in current assets
• Trade credit is the credit extended by one trader to another for the purchase of goods and services
• Retained earnings are a permanent source of funds available to an organization and do not involve any explicit cost
• Lease financing is a contractual agreement where one party grants the other party the right to use an asset in return for a periodic payment
• Factoring is a financial service where a factor provides security for a debt that a firm might otherwise be unable to obtain
• Public deposits are beneficial as they offer higher interest rates and do not usually create any charge on the assets of the company
• Public Deposits:

  • Deposits raised by organizations directly from the public
  • Usually offer a higher interest rate than bank deposits
• Commercial Papers:

  • Unsecured promissory notes issued by firms for short-term finance
  • Generally issued for a period of 90 to 364 days
  • Can be issued to other business firms, insurance companies, pension funds, and banks
• Preference Shares:

  • Shares that carry preferential rights in respect of dividends and return of capital
  • Preference shareholders have preferential rights over equity shareholders in terms of receiving fixed dividends and capital repayment
• Equity Shares:

  • Represent ownership in a company
  • Capital raised through equity shares is known as owner's funds
  • Equity shareholders do not enjoy preferential rights and generally do not have voting rights
• Debentures:

  • Documents issued by companies to raise long-term funds with an assured rate of return
  • Debentures can be of different types such as registered, bearer, convertible, non-convertible, secured, and unsecured
  • Debentures do not carry voting rights and do not dilute control over the company
• Merits of Commercial Banks as a Source of Finance:

  • Timely assistance by providing funds as needed
  • Secrecy of business information can be maintained
  • Flexible source of finance with the ability to increase loan amounts
• Limitations of Commercial Banks as a Source of Finance:

  • Funds generally available for short periods with uncertain renewal
  • Detailed investigations and difficult terms may be imposed by banks
  • Formalities may be required for security of assets and personal sureties
• Merits of Debentures as a Source of Finance:

  • Less costly financing compared to preference or equity capital
  • Fixed income at lesser risk for investors
• Limitations of Debentures as a Source of Finance:

  • Debentures do not participate in profits of the company
  • Financing through debentures is less flexible compared to bank loans
  • Debentures put a permanent burden on the earnings of the company
• Parameters used to measure the size of a business:

  • Number of persons employed in the business
  • Capital invested in the business
• MSMED Act expands to Micro, Small, and Medium Enterprises Development Act
• MSMED Act was enacted in the year 2006
• Meaning of Micro Enterprises related to manufacturing:

  • Investment in plant and machinery does not exceed rupees 25 lakhs
• Meaning of Micro Enterprise related to services:

  • Investment in equipment does not exceed rupees 10 lakhs
• Small enterprise related to manufacturing:

  • Investment in plant and machinery is between Rs. 25 Lakhs to Rs. 5 Crore
• Medium enterprises related to manufacturing:

  • Investment in plant and machinery is between Rs. 5 Crore to Rs. 10 Crore
• Categories of enterprises classified by MSMED Act 2006:

  • Classified into Micro, Small, and Medium Enterprises
  • Based on investment in plant and machinery and in equipment
• Village industries are industries located in rural areas producing goods or services with or without the use of power
• Cottage industries are small-scale manufacturing businesses owned and operated by individuals or families, often based in a home
• Features of cottage industries:

  • Organized by individuals with private resources
  • Use family labor and locally available talent
  • Produce simple products using indigenous technology
  • Produce goods on their own premises
• Role of small business in India:

  • Contribute to GDP
  • Contribute to exports
  • Generate employment
  • Produce a variety of products
  • Contribute to regional balance
  • Develop entrepreneurship
  • Have low cost of production
  • Enable quick decision making
  • Provide customized production
  • Maintain personal touch
• Major industry groups in the small-scale sector:

  • Chemical and Chemical Products
  • Basic Metal Industries
  • Electrical Machinery and Parts
  • Rubber and Plastic Products
  • Paper Products and Printing
  • Transport Equipment and Parts
  • Leather and Leather Products
  • Beverages, Tobacco, and Tobacco Products
  • Wool, Silk, Synthetic Fibre, and Textiles
  • Jute, Hemp, and Mesta Textiles
• Problems faced by small businesses:

  • Limited finance availability
  • Raw material challenges
  • Lack of managerial skills
  • Dependence on unskilled labor
  • Marketing difficulties
  • Quality maintenance struggles
  • Outdated technology use
  • Global competition challenges
  • Capacity utilization issues
• Support to small and rural industries by institutions:

  • National Bank for Agriculture and Rural Development (NABARD)
  • Small Industries Development Bank of India (SIDBI)
  • National Small Industries Corporation (NSIC)
  • Khadi and Village Industries Commission (KVIC)
• National Bank for Agriculture and Rural Development (NABARD):

  • Set up in 1982 to promote integrated rural development
  • Supports small industries, cottage and village industries, and rural artisans
  • Provides credit, counseling, consultancy services, and training programs for rural entrepreneurs
• Rural Small Business Development Centre (RSBDC):

  • Set up by the world association for small and medium enterprises and sponsored by NABARD
  • Works for socially and economically disadvantaged individuals and groups
  • Provides management and technical support to micro and small entrepreneurs in rural areas
• National Small Industries Corporation (NSIC):

  • Established in 1955 to promote and foster the growth of small business units in the country