Internal sources of finance
In this lesson, you'll learn how organisations can generate their own funds for investment through internal sources of finance. You'll discover the key difference between profit and cash, and explore two critical internal funding options: retained earnings and working capital efficiency.
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In this lesson
- 0:00 Internal sources of finance overview
- 0:27 Cash versus profit distinction
- 1:14 Retained earnings as funding source
- 2:15 Working capital efficiency strategy
About this lesson
Understanding these concepts is essential for FM and SBL papers, as examiners test your ability to evaluate realistic funding decisions and explain why internal sources are often the most cost-effective choice. The video covers retained earnings—the profit retained by directors rather than paid to shareholders—and explains why this is immediately available funding. You'll also learn how improving working capital efficiency releases cash tied up in day-to-day operations, creating additional capital for reinvestment. A crucial insight throughout is that generating profit doesn't guarantee surplus cash; depreciation and accounting policies can mask the true cash position, so businesses must distinguish between what looks profitable on paper and what's actually available to spend.
Duration: 3m
Transcript
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