Final answer:
Companies cannot solely rely on their own profits for financial capital without the need for outside investors due to the significant capital requirements of business operations and growth initiatives.
Step-by-step explanation:
In order to understand why a company cannot solely rely on its own profits for financial capital without the need for outside investors, we must first understand the concept of financial capital. Financial capital refers to the money and other assets that a company uses to fund its operations and invest in future growth. While a company's profits contribute to its financial capital, it is often not sufficient to meet all the capital needs of a business.
Businesses require a significant amount of capital to finance their operations, such as purchasing equipment, expanding production capacity, research and development, and marketing efforts. Relying solely on profits generated by the business may limit the ability to fund these activities adequately.
External sources of capital, such as investors or loans, provide additional funds that can be used to finance growth initiatives. By attracting external investors, businesses can access larger amounts of capital and benefit from expertise and resources that these investors bring.