I have a very basic fundamental question about this topic.
On page 78 of the Corporate Finance book, Reading 33 Cost of capital, it is said:
“The company acquire the capital or funds necessary to make investments by borrowing or using funds from owners”
This is clear to me. However. Why does a company not use the profit it gets from its operations to fund its investments instead of debt/equity? This net profit should be also a source of “free” cash to fund investments, right?
Shouldn’t then the company have 3 sources of capital? Debt + Equity + Profit from operations?
If I were a company, I would make use of this profit I get from running my business as a first source of cash to be reinvested in my company for future projects. And only if I don’t have enough I would try to get financed from debt or equity.
What are your views on this?
Thank you very much