method that does not work very well at all, and a slow, reliable method that can work very well over a lifetime.

17.1 How Businesses Raise Financial Capital

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Describe financial capital and how it relates to profits

• Discuss the purpose and process of borrowing, bonds, and corporate stock

• Explain how firms choose between sources of financial capital

Firms often make decisions that involve spending money in the present and expecting to earn profits in the

future. Examples include when a firm buys a machine that will last 10 years, or builds a new plant that will last

for 30 years, or starts a research and development project. Firms can raise the financial capital they need to

pay for such projects in four main ways: (1) from early-stage investors; (2) by reinvesting profits; (3) by

borrowing through banks or bonds; and (4) by selling stock. When business owners choose financial capital
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