PPT - Internal Finance | Accountancy and Financial Management - B Com PDF Download

 Page 1


INTERNAL 
FINANCING
Page 2


INTERNAL 
FINANCING
MEANING
A new company can raise funds only 
through external sources such as share , 
debenture , loans etc.
But an existing or a going concern 
which needs finance for its future growth 
and expansion can also generate through 
its internal sources . Such as retained 
earnings or ploughing back of profits , 
capitalisation of profits and depreciation.
Page 3


INTERNAL 
FINANCING
MEANING
A new company can raise funds only 
through external sources such as share , 
debenture , loans etc.
But an existing or a going concern 
which needs finance for its future growth 
and expansion can also generate through 
its internal sources . Such as retained 
earnings or ploughing back of profits , 
capitalisation of profits and depreciation.
PLOUGHING BACK OF PROFITS
? In this all the profits of the year are not 
distributed among the shareholders . Total 
profit retained in the firm . The process of 
retaining profits year after year and their 
utilisation in business known as self financing 
or inter financing . 
Page 4


INTERNAL 
FINANCING
MEANING
A new company can raise funds only 
through external sources such as share , 
debenture , loans etc.
But an existing or a going concern 
which needs finance for its future growth 
and expansion can also generate through 
its internal sources . Such as retained 
earnings or ploughing back of profits , 
capitalisation of profits and depreciation.
PLOUGHING BACK OF PROFITS
? In this all the profits of the year are not 
distributed among the shareholders . Total 
profit retained in the firm . The process of 
retaining profits year after year and their 
utilisation in business known as self financing 
or inter financing . 
NEED OF PLOUGHING BACK OF PROFITS
? For replacement of old asset which have 
been obsolete . 
? For expansion and growth . 
? For making company self dependent .
? For redemption of loan and debenture . 
? For satisfy the working capital needs of 
company .
Page 5


INTERNAL 
FINANCING
MEANING
A new company can raise funds only 
through external sources such as share , 
debenture , loans etc.
But an existing or a going concern 
which needs finance for its future growth 
and expansion can also generate through 
its internal sources . Such as retained 
earnings or ploughing back of profits , 
capitalisation of profits and depreciation.
PLOUGHING BACK OF PROFITS
? In this all the profits of the year are not 
distributed among the shareholders . Total 
profit retained in the firm . The process of 
retaining profits year after year and their 
utilisation in business known as self financing 
or inter financing . 
NEED OF PLOUGHING BACK OF PROFITS
? For replacement of old asset which have 
been obsolete . 
? For expansion and growth . 
? For making company self dependent .
? For redemption of loan and debenture . 
? For satisfy the working capital needs of 
company .
FACTORS AFFECTING 
? Earning capacity
? Desire and type of shareholder
? Dividend policy
? Taxation policy
? Future financial requirement