Question

Justify the following statement.

The firm has multiple choices of sources of financing.

Answer 1

1. Finance is the lifeblood of the organization. The business firm has access to the capital market to fulfill its financial needs.
2. The firm has multiple choices of sources of financing. Different types of securities like shares, debentures, etc. can be issued to raise funds.
3. Funds may also be borrowed from financial institutions and lenders. The finance manager must ensure that the firm is well capitalized.
4. Thus, it is rightly justified that the firm has multiple choices of sources of financing.

Answer 2

1. Business firms need finance in the form of working capital and fixed capital to operate efficiently.
2. Funds are essential at various stages of a business, and companies can acquire them from both internal and external sources.
3. Internal sources include cash inflows from sales, income from investments, and retained earnings, which help in meeting financial needs.
4. For short-term requirements, businesses can rely on cash credit, overdraft facilities, trade credit, bill discounting, and commercial paper issuance as external sources.
5. For long-term financing, firms can raise funds through the issuance of shares, debentures, bonds, and public deposits.
6. Thus, businesses have multiple financing options available to fulfill their capital needs effectively.