4 LONG-RUN FINANCING POLICY

As discussed in more detail in Salmi (1980) and (1982) the long-run financing policy of the firm is characterized by a long-run funds-flow statement as well as growth and profitability. It is readily shown that in steady state growth all the components of the funds-flow statement grow at rate g in the model. (The same goes for depreciation.) Consequently, all the components of the statement can be divided by Qt (funds from operations in empirical application). The financing policy of the firm is thus described by the following constant ratios.

Image: Figure 3

The funds-flow statement is based on the following yearly income statement and change in balance sheet

Image: Figure 4

Image: Figure 5


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Department of Accounting and Finance, University of Vaasa,
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