Final answer:
The two principal sources of financing for corporations are debt, such as bank loans or bonds, and equity, which is raised through selling company shares. Profits can also be reinvested as a source of financial capital, but external funding options are essential, especially for new firms.
Step-by-step explanation:
The two principal sources of financing for corporations are debt and equity. When we talk about debt, this includes taking out loans from banks or issuing bonds which are to be repaid over time, along with interest. As for equity, this refers to raising money by selling shares of the company to investors, which gives them ownership stakes.
Profits can also serve as a source of financial capital, especially for established companies, which can reinvest their earnings back into the business. However, firms, particularly new ones, may need financial capital beyond what their profits can provide. This is where external funding through debt or equity becomes crucial. In addition, there are methods for early-stage financing such as seeking early-stage investors, or for established entities to raise capital through long-term borrowing like issuing bonds.