Final answer:
Financial resources for a firm can come from profits made through product sales or from borrowing via banks or bonds. Reinvesting profits is common for established companies, while borrowing is often necessary for new or financially struggling firms to ensure continued investments during hard times.
Step-by-step explanation:
Financial resources include revenue from the sale of products and loans from financial institutions. Two main sources of financial capital for firms are profiting from their operations and borrowing from banks or through bonds. If a firm is earning profits, or its revenues are higher than its costs, the firm has the option to reinvest these profits into various aspects of the business, such as equipment, structures, and research and development. This reinvestment is a primary means of financing for many established companies. On the other hand, companies that are starting out, or even large businesses experiencing low profit periods, may need to seek out additional financial capital sources to continue investments and operations during tough times.
Borrowing money becomes a viable option when a company has a history of significant revenues or profits, enabling them to make credible promises to pay back the borrowed amount with interest. The common methods include obtaining loans from banks or issuing bonds. Financial institutions, such as banks, consider a firm's financial health, revenue consistency, and credit score when providing loans. These borrowed funds then become part of the company's assets, which can be used for further development and growth.