Final answer:
The basic sources of funds for a firm include debt, equity, and reinvesting profits, each having distinct advantages and limitations.
Step-by-step explanation:
The basic sources of funds for a firm are primarily debt and equity. When a company needs to raise capital, it has several options, including borrowing money through banks or bonds, or by selling stock. With debt financing, the company maintains control but must make scheduled interest payments, while with equity, a firm sells ownership through stocks and becomes accountable to shareholders and a board of directors.
Companies may also access funds by reinvesting profits, which is a common practice for established firms with significant revenues that exceed their costs. In contrast, early-stage investors are often utilized by new companies that might lack profits to reinvest. Each of these funding methods comes with unique benefits and limitations that a company must consider depending on their specific circumstances and financial health.