Internal finance
Internal finance can come from retained earnings, improved working-capital management or asset sales. It may avoid some issue costs and preserve existing ownership, but is not free: retained earnings belong economically to shareholders and have an opportunity cost, while selling assets can sacrifice future benefits. The amount available depends on cash, legal and operational constraints rather than the accounting profit alone. Compare internal funds with external debt or equity in a coherent investment and dividend plan.
Worked example
A company collects receivables more quickly and releases $100,000 of cash without harming customer relationships. It can use that cash to help fund equipment instead of borrowing the full amount.
Common mistake
Assuming retained profits are necessarily available as cash or that internally generated funds have no required return.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |