Final answer:
Financial capital refers to the funds and assets that a company uses to generate profits. Firms can obtain financial capital through borrowing, bonds, and corporate stocks. The choice of a specific source of financial capital depends on various factors such as interest rates, terms, and the company's goals.
Step-by-step explanation:
Financial capital refers to the funds and assets that a company uses to generate profits. It includes both the money invested in the business by owners and investors, as well as loans and other forms of financing. Financial capital is essential for a company's operations, expansion, and profitability.
Borrowing, bonds, and corporate stocks are three common sources of financial capital for firms. Borrowing involves taking loans from banks or other lenders, while bonds are debt securities issued by companies to raise capital. Corporate stocks, on the other hand, represent ownership in a company and can be bought and sold in the stock market.
Firms choose between different sources of financial capital based on factors such as interest rates, terms and conditions, and the company's financial goals. They may prefer borrowing when interest rates are low, issue bonds to raise large amounts of capital, or issue stocks to attract investment and diversify ownership.