–          The nature of short-term finance is that it tends to be risky in the sense of requiring the firm to frequently renew the principal amounts of financing outstanding; this could become a problem during ‘hard times’.


–          The rates of return on financing either short or long term activities are best understood by considering the costs of the financing type.

–          Interest rates are not the reason for return or cost differences between short or long term finance.

–          The costs depend on reversibility differences between the types of finance. In situations where companies find themselves with unforeseen reductions in the need for financing, short-term finance is dispensed with (reversed) quickly at the end of its term.

–          Therefore short-term finance is less costly than long-term finance and because lower costs mean higher return, it also exhibits a higher return.

–          This is exactly opposite of the risk return characteristic of its assets.

The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]

Leave a reply

BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp

Log in with your credentials


Forgot your details?


Create Account