Concepts and explanation
Finance supports fixed assets and working capital. Equity has no fixed repayment but dilutes ownership. Retained earnings avoid issue costs but depend on profit and distribution policy. Loans and debentures preserve ownership but create interest and repayment commitments. Trade credit, factoring, lease finance and deposits fit different needs. Select by amount, duration, cost, risk, flexibility and control effects.
Business example
Short-term supplier credit may fund seasonal inventory; financing a long-lived machine with a short loan creates a maturity mismatch.
Case-based practice
- A company wants to add a production line but owners want to retain control and cash flows are predictable. Compare a term loan and a fresh equity issue.
- Write a short answer that names the relevant concept and applies it to the facts.
Quick revision
Revision cue: Define the term, distinguish it from a related concept and support the answer with a relevant example.