A Cash Purchase is Self Financing

We often think of "financing" or "leasing" as something the bank, equipment finance company, or leasing company provides. A cash purchase somehow does not feel like "financing" and yet that is exactly what it is. I refer to cash buying as "self financing" because one must borrow from oneself and in the process trade the utility or earning potential of the cash in favor of an investment in equipment (which may bear its own return). When most people think of taking money from their own bank account to make a purchase of some capital goods or equipment they view the loss of investment opportunity (on the capital) as equal to the savings or investment rate that they would have received had they kept their capital in the bank. Yet the true opportunity-cost of one's own money is not the loss of the investment return you receive on the static use of money in the bank but rather the loss of the return that you would average on your capital when reinvested in a business. The Return On Capital for many broadcasters and media related companies typicially is targeted to return from 12% to 20%. In many cases if business has the opportunity to borrow with financing at rates in the 7% or 8% range it may be a better alternative to use outside funding and use ones own capital to re-invest in business growth, people, acquisitions or operations.