![]() This financing option is equity financing, and it will be addressed in detail in Corporation Accounting. With equity-based financing, the company sells an interest in the company’s ownership by issuing shares of the company’s common stock. If a company needs additional funding for a major expenditure, such as expansion, the source of funding would typically be repaid over several years, or in the case of equity-based financing, over an indefinite period of time. When additional long-term funding needs arise, a business can choose to sell stock in the company (equity-based financing) or obtain a long-term liability (debt-based financing), such as a loan that is spread over a period longer than a year. Short-term (current) liabilities were covered in Current Liabilities. If the extra amount needed is somewhat temporary or small, a short-term source, such as a loan, might be appropriate. However, situations might arise where the cash flow generated is insufficient to cover future anticipated expenses or expansion, and the company might need to secure additional funding. In some cases, in the long-run, profitable operations will provide businesses with sufficient cash to finance current operations and to invest in new opportunities. As you’ve learned, net income does not necessarily mean cash. ![]() Businesses have several ways to secure financing and, in practice, will use a combination of these methods to finance the business. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |