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Finance > Corporate Finance > Medium/Long term purposes

Needs - Medium and long term purposes

At the time of setting up operations, undertaking of new activities, expansion/modernisation of existing manufacturing facilities or to meet the working capital requirements of a permanent nature (also known as owners' stake in working capital), corporates need funds which cannot be repaid in a hurry. The assets required for all these activities generate income after a gap, but this stream of income lasts for longer time. The corporates, therefore, need funds which can be paid over a period of time. Such funds are called medium or long-term funds. The major external sources for such funding are borrowings from Banks or Financial Institutions (Term Loans), issue of shares (equity and preference shares), issue of debentures or bonds or raising fixed deposits from the public. In the case of existing corporates, another source, which can meet these requirements, is the retained earnings or the profit ploughed -back into the business. This source of funds, however, is available only to corporates which practise prudent management policies in operations to maximise profits, in tax planning and in the distribution of income.

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