Question

Carol’s Clothiers, LLP, sells women’s business clothing designed by the world’s top designers. The company also sells clothing from its own line which is priced just below the designer clothing, but is nonetheless of very high quality. Carol’s has, throughout its history, been attentive to the financial needs of the company and the seasonal fluctuations in income and expenses, and has planned accordingly. Except for the initial start-up expenses which were paid by the partner’s loaning funds to the company, Carol’s has always paid its bills from the income generated by sales. During the second year in operation, the company repaid the loans made by the partners. Since the initial loans made by partners have been repaid, what kind of financing does Carol’s Clothiers, LLP used as its primary source of funds?

Answer 1

Answer:

Retained earnings.

Explanation:

This usually occurs when a company finances it operations from the profit accrued from sales of products or services.

From the profit Carol's Clothiers made by selling their products which is termed retained earnings, would serve as its primary source of funds to grow their business.

Also as an LLP (limited liability partnership) a partnership in which some or all partners may have limited liabilities, they could use their retained earnings to reward shareholders in the form of dividend payments or a buyback of shares.