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IAI Actuarial Core Principles · Business Finance · Structure and methods of financing a company

Which of the following is the most significant internal source of long-term finance for an established, profitable Indian manufacturing company?

Retained profits are the main internal source of long-term finance. They come from the company's own earnings and need no outside party. Rights issues, debentures, bank loans and sale and leaseback all involve outside investors or lenders, so they are external sources.

  1. ARetained profitsCorrect
  2. BA rights issue of equity shares
  3. CIssue of non-convertible debentures
  4. DA term loan from a bank
  5. Sale and leaseback of a factory

Explanation

Retained profits are generated inside the business and are the largest internal source for mature profitable firms. Rights issues, debentures and term loans are external sources because they require outside investors or lenders. Sale and leaseback is also generally treated as external, since the asset is sold to a third party.

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