# Long-Term Sources of Finance: Strategies & Capital Structure
> Explore long-term financing options like equity, debt, and retained earnings to build a sustainable capital structure and optimize business growth.

Tags: corporate-finance, capital-structure, equity-shares, debt-financing, financial-management, business-funding
## Long Term Sources of Finance
* Introduction to strategies for a sustainable capital structure.

## What is Long Term Finance?
* Defined as funding for periods exceeding one year, typically 5 to 20 years.
* Critical for modernizing operations and expanding capacity.

## Classifications of Funding
* **Ownership Capital (Equity):** Funds provided by company owners.
* **Borrowed Capital (Debt):** Funds from outside sources like banks.
* **Internal Sources:** Retained earnings and depreciation.

## Equity Shares
* Represents company ownership with voting rights.
* Dividends are variable based on profitability; considered a permanent capital source.

## Risk vs. Cost: Capital Comparison
* **Debt:** Lower cost (approx. 6.5%-8%) but higher financial risk of bankruptcy.
* **Equity:** Higher cost (approx. 15%) but lower risk of bankruptcy.
* **Preference Shares:** Hybrid instrument with costs around 10.5%.

## Debentures & Bonds
* Fixed-interest debt instruments.
* Interest must be paid regardless of profit, often secured against assets.

## Preference Shares
* Hybrid instrument with fixed dividends.
* Priority over equity in liquidation but usually no voting rights.

## Retained Earnings
* Concept of 'ploughing back' profits.
* Benefit: No dilution of control and no explicit interest cost.

## Decision Factors
* **Cost:** Interest rates vs. dividend expectations.
* **Risk:** Managing financial leverage.
* **Control:** Balancing voting power (debt does not dilute control).
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