Ensure Access to Target Sources of External Finance
Having estimated the company’s future financing needs, management must identify the target
sources (e.g., banks, insurance companies, public debt markets, public equity market) and establish
financial policies that will ensure access to financing on acceptable terms. Consider the following
questions:
This document is authorized for use only by Curtis Hitzeman in FIN-320-T1999 Principles of Finance 21EW1 at Southern New Hampshire University, 2021.
1. How sound is the firm’s financial structure, given its level of profitability and cash flow, its
level of business risk, and its future need for finance?
2. How will the firm service its debt? To what extent is it counting on refinancing with a debt or
equity issue?
3. Does the firm have assured access on acceptable terms to the equity markets? How many
shares could be sold and at what price in “good times”? In a period of adversity?
4. What criteria are used by each of the firm’s target sources of finance to determine whether finance will be provided and, if so, on what terms?
