Financing Choices and a Firms Life Cycle

While we spent the last section looking at the different financing choices available to a firm, they all represent external financing, i.e, funds raised from outside the firm. Many firms meet the bulk of their funding needs internally, with cash flows from existing assets.

In this section, we begin by presenting the distinction between internal and external financing, and the factors that may affect how much firms draw on each source. We then turn our attention again to external financing. We consider how and why the financing choices may change as a firm goes through different stages of its life cycle, from start-up to expansion to high growth to stable growth and on to decline. We will follow up by looking why some choices dominate in some stages and do not play a role in others.

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