SO1

Question 1

What is capital?

Answer 1

Capital is defined as money invested in a business which is used to purchase assets to facilitate trade. It is used to start build and grow a business

Question 2

Why do businesses need capital?

Answer 2

Businesses need capital to carry out their goals, expand their business and to finance the day- to-day operations.
Without it the business can face many risks.

Question 3

Types of capital
Start-up Capital

Answer 3

start-up capital is money needed to establish a business.

Question 4

Venture Capital

Answer 4

Venture Capital is a form of capital provided by an investor(venture capitalist) who support the start-ups of a business with potential

Question 5

Working Capital

Answer 5

Working capital is money needed to finance the day to day operations of a business

Question 6

working capital calculation

Answer 6

Working capital is calculated as
current assets-current liabilities
This calculation shows the company’s ability to meet its short term obligation and operational needs.

Question 7

Managing working capital
Inventory

Answer 7

Businesses can devise a strategy that will enable it to purchase the optimum level of stock’ ensuring that inventory is neither to high or low (overstocking)

Question 8

Debtors

Answer 8

Lack of payment by debtors or extended credit periods will decrease the amount of liquid funds available.
to mitigate this
offer cash discounts, reducing credit period, limiting the amount of credit to debtors to reduce bad debts.

Question 9

Bank

Answer 9

The firm may need financing from banks, however being overly in debt is not a good sign. Businesses should ensure that loans are spread in terms of repayment.

Question 10

Increasing working capital

Answer 10

Dispose of non-productive assets(assets not being used)
Factoring(A financial strategy used to manage working capital by selling their debtors to a third party at a discount)
Additional funds from owners(savings, loans from relative etc.)