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They do not become completely a part of the first years costs and the returns from the investment are spread over a period of several years.
The term can apply to a company that experiences seasonal fluctuations in business.
During the busy season when business is booming the company needs to borrow money to finance short-term assets such as inventory and accounts receivable.
The following points Although necessary, it is not sufficient to only analyse the productivity or the additional returns that will accrue due to the borrowed funds.
A loan may be productive but still it may not generate sufficient income to leave funds sufficient enough to repay the loan.
Next month, since you owe less money,you pay less interest, which means more of your money goes to the principal.