Internal Finance refers to funds generated within the business itself, without relying on external sources. It primarily includes retained profits, which are the profits kept in the business after dividends are paid out to shareholders, allowing the company to reinvest in its operations. Internal finance can also come from the sale of assets, specifically unused or non-core assets, providing an immediate cash injection. This type of finance is advantageous because it does not involve paying interest or diluting ownership, thus avoiding additional costs and loss of control. However, it may involve opportunity costs, as shareholders receive less profit when profits are retained rather than distributed.
1. How do internal and external finance primarily differ in their sources?
2. What is a primary advantage of internal finance over external finance?
3. Who is credited with proposing the concept of internal finance?
Raising Finance Types — categories?
Internal and external sources of funding.
Internal Finance — definition?
Funds generated within the business, e.g., retained profits.
Internal Finance — main sources?
Retained profits and sale of assets.
External Finance — types?
Short-term and long-term external funds.
Retained Profits — role?
Reinvested profits after dividends.
Trade Credit — example?
Delaying supplier payments.
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