What are a firm’s two principal sources of financing? Of what do these

What are a firm’s two principal sources of financing? Of what do these sources consist?

What will be an ideal response?

ANSWER

The total assets represent the resources owned by the firm, and total liabilities and total shareholders’ equity indicate
how those resources were financed. Debt is money that has been borrowed and must be repaid at some predetermined
date to the creditors. Equity represents the shareholders’ (owners’) investmentNboth preferred stockholders and
common stockholdersNin the firm.
Preferred stockholders generally receive a dividend that is fixed in amount. In the event of the firm being liquidated,
these stockholders are paid after the firm’s creditors but before the common stockholders. Common stockholders are the
residual owners of a business. They receive whatever income is left over after paying all expenses. In the event the firm
is liquidated, the common stockholders receive only what is left overNgood or badNafter the creditors and preferred
stockholders are paid. The amount of a firm’s common equity is equal to the sum of two items: 1. the amount a
company receives from selling its stock to investors, and 2. profits retained within the business.