The external financing requirements of a firm are a function of:
A) Sales growth
B) Retention ratio
C) Profit margins
D) All of the above

Question

Quizplus · Accepted Answer

The external financing requirements of a firm depend on all the factors mentioned in options A, B, and C. Sales growth increases the demand for investment in fixed assets and working capital, leading to a higher need for external financing. Retention ratio measures the portion of earnings retained by the firm for reinvestment, and a lower retention ratio indicates a greater need for external financing. Profit margins directly impact the firm's ability to generate internal funds for reinvestment and, therefore, also affect the external financing requirements. Therefore, all the options contribute to the external financing requirements of a firm.

The External Financing Requirements of a Firm Are a Function