© 2000 John Petroff

To grow all firms need new capital. Some of the new funds arrive smoothly and almost automatically: for instance, trade credit or, if things go well, retained earnings. But, for significant growth of sales and assets, trade credit and retained earnings are not enough. For most firms obtaining new capital is very difficult. And when new capital can finally be arranged, it comes in big lumps: not smooth and not continuous. The firm must study the various sources, and devise a strategy to seek the type of financing that corresponds to its particular needs. Costs and ability of raising capital depend also on attitudes and trends in capital markets. The task of the analyst is to determine what financing strategy the company follows, and see if it matches internal needs and capital market conditions. The previous chapter focused of the proportion of equity and debt a firm should use. In this chapter we go beyond this rather simplistic duality, and review the different types of capital sources,

A- Retained earnings
B- Common stock
C- Preferred stock
D- Bonds
E- Term loans and leasing
F- Short term borrowing
G- Liability management

H- Pro forma liabilities and equity

See review questions Q-12.1 through Q-12.4.

Previous: Capital Structure Comments

Last modified: Jun/01/01

Next: Retained earnings