What kinds of companies are most likely to generate internal capital (i. e., retained earnings and leverage) and why don't they have as much access to external capital (investors) ?

Question

Nathanael Richmond

Business

24 May, 04:23

What kinds of companies are most likely to generate internal capital (i. e., retained earnings and leverage) and why don't they have as much access to external capital (investors) ?

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Devin Smith · Answer 1

Answer and explanation:

Financial institutions tend to generate more internal capital since they profit from money that they hold in their treasury and reinvest in other ventures. They differentiate from other companies such as manufacturers from the fact that most of them do not rely on the production of a good to earn profits. Banks rely on interests paid from borrowers after loans are lent.

External investment to financial institutions is usually limited by government policies to avoid the "richer getting richer". Besides, banks tend to have a limited number of investors within their organizations who are in charge of deciding the path the financial institution will take to reach their established goals.