Question
All of the following are major external sources of long-term finance available to companies except: retained earnings ordinary shares finance leases borrowing preference shares
Answer
4.6
(348 Votes)
Preston
Professional · Tutor for 6 years
Answer
Retained earnings
Explanation
## Step1:The first step is to understand the nature of all the financial categories listed in the question. Long-term finance usually refers to funds acquired in a period greater than one year.## Step2:Upon examining all the choices, we can see that:- Retained earnings refer to the profits obtained from a company, which are then reinvested into the business rather than distributed as dividends. This source of funding is internal, not external.- Ordinary shares represent equity ownership in a company and holders have voting rights. These generate funds that the company does not return, they're an external and long-term source of funds.- Finance leases are also external sources of long-term funds. In a finance lease agreement, a leasee gains certain rights to use a lessor's property in exchange for money over an explicitly stated period.- Borrowing typically refers to loans which is clearly an external source and can be short to long-term based on duration of the loan.- Preference shares are like ordinary shares in that they provide a company with capital reserves, similarly, they are an external, long-term source of funding.## Step3:We can conclude, based on prior analysis, that out of the all the presented options, the one which does not serve as an external source for company’s long-term finance is 'Retained earnings.'