Final answer:
A firm's nonfinancial goals differ from financial goals in that they often encompass broader, values-driven objectives, whereas financial goals focus on monetary metrics. Financial capital is the money needed for investment, impacting profit generation. Firms select sources of financial capital, such as loans, bonds, and stock, based on factors like cost, risk, and control.
Step-by-step explanation:
A firm's nonfinancial goals may include objectives related to social responsibility, environmental sustainability, market share growth, brand reputation, or employee well-being, which are distinct from its financial goals, which primarily focus on revenue, profit margins, return on investment, and shareholder value. Financial capital is essentially the money that firms use to invest in their operations with the expectation of generating profits. It is related to profits in that effective use of financial capital should lead to profitability through business operations.
The purpose of borrowing, issuing bonds, and selling corporate stock is to raise the necessary financial capital. Borrowing from banks involves taking loans and paying back with interest. Issuing bonds is essentially borrowing from the public and promising to pay back with interest. Selling corporate stock entails exchanging ownership shares in the firm for money. Each of these methods has a cost and affects control over the company.
Firms choose between sources of financial capital based on factors such as the cost of capital, the amount of financial control and flexibility they want to retain, and the level of risk they are willing to assume. This decision-making process also contemplates imperfect information, where the firm's managers might have better insight into the firm’s profitability prospects than outsiders. Hence, the choice involves balancing immediate financial needs with long-term strategic goals.