Final answer:
The preferred method for generating cash in a firm is through its core business operations, known as operating activities. These provide a sustainable source of cash compared to investing and financing activities, which have their own benefits and limitations.
Step-by-step explanation:
The preferred method to generate cash in a firm is through operating activities. This involves the firm's core business operations such as selling products or providing services. Operating activities are the most sustainable source of cash because they are expected to continue for the long term.
In contrast, investing activities often involve the purchase of long-term assets that will help generate future revenue but may not provide immediate cash influx. Financing activities include borrowing from banks or issuing bonds and stock, which can provide cash but also involve additional considerations like interest payments or diluting ownership.
When a firm has to choose how to access financial capital, it can opt to use early-stage investors, reinvest profits, borrow through banks or bonds, or sell stock. Each option has its own advantages and drawbacks, such as maintaining control over the firm's operations or being accountable to a board of directors and shareholders.