Final answer:
A company's need for external finance can increase due to factors such as growth and expansion, capital-intensive industries, seasonal fluctuations, and economic downturns.
Step-by-step explanation:
Increase in a company's need for external finance can occur due to various factors:
- Growth and expansion: When a company is experiencing growth and expansion, it may require additional funds to invest in new projects, purchase assets, or hire more employees.
- Capital-intensive industries: Industries that require significant investment in equipment and infrastructure, such as manufacturing or transportation, often rely on external financing to fund their operations.
- Seasonal fluctuations: Some businesses, like tourism or agriculture, experience seasonal fluctuations in demand. To meet the demands during peak seasons, they may need to obtain loans or credit to manage their cash flow.
- Economic downturn: During an economic downturn when sales decline, companies may need external finance to cover their operating costs and avoid bankruptcy.
These are just a few examples, but there could be other factors that increase a company's need for external finance.