A toy manufacturer following the self-liquidating debt principle will generally finance seasonal inventory build-up prior to the holiday season with:

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The self-liquidating debt principle involves financing short-term assets with short-term liabilities that will be repaid with the cash inflows generated by the sale of those assets. Trade credit, which is a form of short-term borrowing from suppliers, is a common source of financing for seasonal inventory build-up because it is quick and easy to obtain and is typically due within a short period of time, such as 30 days. Ordinary shares and preference shares are equity financing options, which are not typically used to finance short-term assets. Selling equipment would be a form of asset disposal and would not generate the necessary cash inflows to finance inventory build-up.

A Toy Manufacturer Following the Self-Liquidating Debt Principle Will Generally