Q.Write a short note on: Long-term Finance

Fixed capital is the money invested in fixed or permanent assets — land, building, plant, machinery, furniture — which are held for a long period to carry on production, are not meant for resale, and whose benefit is derived over many years.

Fixed capital refers to that portion of the total capital of a business which is invested in fixed assets, that is, assets of a permanent nature such as land, buildings, plant and machinery, furniture and fixtures, and vehicles. These assets are acquired to be used again and again in the business over a long period and are not meant for resale. Fixed capital is generally large in amount, is required for a long term, and is financed from long-term sources like shares, debentures and …

Long-term finance refers to funds needed by a business for a long period (usually more than five years), chiefly to buy fixed assets and to meet permanent capital needs. It is raised through long-term sources such as equity and preference shares, debentures, long-term loans and ploughed-back profits.

Long-term Finance

Long-term finance means the funds required by a business for a long period of time, generally for more than five years. It is needed to:

• purchase fixed assets such as land, buildings, plant and machinery,
• finance permanent working capital, and
• meet the needs of modernisation and expansion.

Because these needs are permanent or semi-permanent, long-term finance is raised from long-term sources such as:

• Equity shares and preference shares,
• Debentures,
• Long-term loans from banks and financial institutions, and
• Retained earnings (ploughing back of profits).

It is distinguished from medium-term finance (one to five years) and short-term finance (up to one year, for working-capital needs).

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