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Identify the three basic ways that firms finance operations (retained earnings, stock issues, and borrowing), and explain the advantages and disadvantages of each.


Financing a company can be an expensive task. In order to do so firms rely on the following three basic methods.


1) Retained Earnings, are funds that companies keep in order to invest into the company in order to expand and improve profitability. It can be the case that a companies net earnings is less than their retained earnings, creating a deficit for the companies.

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Clickfor a ink to a video that explains a companies retained earnings.




2) Stock Issues, are the sale of shares of the company to the public. It is a good way for a company to get investments needed to run a business. However, there are times when a company may want to buy back shares. Click here for a link on why this might be the case.



3) Borrowing, is a common way that businesses gain capital to finance their operations.

external image 200px-Dollar_Sign.svg.pngTo learn more, see Borrowing Money from the United States Small Business Administration.