Final answer:
To repay money borrowed from a bank, firms typically use Inflow of Cash from Operating Activities, representing earnings from their main business activities. Inflow of Cash from Financing Activities, like acquiring new loans, is also possible but less sustainable.
Step-by-step explanation:
When a firm borrows money from a bank, it commits to repaying the loan with interest according to a set schedule. To accumulate the necessary funds for repayment, a business typically utilizes cash inflows from various activities. When considering how can you repay money borrowed from a bank, we look at cash flow statements, which categorize cash flows into operating, investing, and financing activities.
The most direct way a business can repay a loan is through Inflow of Cash from Operating Activities. This includes cash received from customers for goods or services, and generally represents the main revenue-generating activities of the company. A secondary method could involve Inflow of Cash from Financing Activities if the business obtains additional capital from issuing new debt or equity. However, it’s important to note that utilizing financing activities to repay existing debt can lead to increased leverage and is not typically a sustainable long-term strategy.Therefore, when we ask how can you repay money borrowed from a bank, we generally look to the primary activities of the business to generate sufficient cash flow to meet their debt obligations, rather than relying on further financing or investment capital which could put the business in a more challenging financial position.