CAPITAL FOR A PROFIT ORGANIZATION Term Paper Example | Topics and Well Written Essays - 500 words

CAPITAL FOR A PROFIT ORGANIZATION - Term Paper Example The chief sources of capital for any given profitable organizations are debt and equity financing; which accounts for almost 40 percent of all the existing companies in the entire world. In most cases, profitable organizations will always dwell on the external sources of money during a financial crisis. Debt financing refers to the situation whereby the profitable organization decides to borrow money and use it to finance the several business projects and departments. The best examples of the debt financing available for the profitable organization entail of the banks, government guaranteed loans and financing companies (Coleman, 2008). In most cases, the profitable company will refund the money with interest. The interest depends on the amount of capital borrowed and duration of payment. The agreement between the lender and the management of the profitable organization determines the rate of payment of debt. However, in the case of equity financing, the profitable company acquires capital from the money that owners and stakeholders invest in the business. Most of the profitable companies will always utilize the money obtained from owners and stakeholders before borrowing. In such a case, borrowing of the money will only occur if the money from the owners is not enough. In some situations, well-developed profitable organizations might choose to sell a portion of the company to investors in exchange for capital. In today’s world, most profitable companies sell shares to the public to raise necessary funds to aid in running the business. Other sources of capital for the profitable businesses entail of the internal sources of money, which originate from operations in the companies. According to Mayover (2009, p. 127), a positive operating income originates from the business activities undertaken hence yielding profitable returns. The amount of money that the profitable organization gains as profit might act as