An existing company can generate internal financing through retained earnings, profits plowed back into the business, and depreciation. Profits not distributed to shareholders are retained and reinvested in the company, a process known as self-financing. Benefits of plowing profits back include economic expansion and growth, redemption of loans, satisfying working capital needs, and making the company self-reliant. However, over-capitalization, creation of monopolies, and shareholder dissatisfaction are potential limitations. Depreciation is the gradual decrease in asset value over time, which is recorded through book entries that reduce asset book value and profits by the same amount each year.

1. INTERNAL
FINANCING
Presented by:-
RAVI
GARG
MBA 1ST
M1212

2. 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.

3. 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 .

4. 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 .

5. FACTORS AFFECTING
 Earning capacity
 Desire and type of shareholder
 Dividend policy
 Taxation policy
 Future financial requirement

6. MERITS
 Economic method
 Help to redeem liabilities
 Increase productivity
 Decrease the risk of failure
 Safety of investment
 Make company self dependent
 Flexible financial structure

7. LIMITATIONS
 Over capitalisation
 Creation on monopolies
 Depriving the freedom of the investor
 Misuse of the retained earning
 Manipulation in value of shares
 Evasion of tax
 Dissatisfaction among the shareholder

8. DEPRECIATION AS A SOURCE OF FINANCE
 It means the gradual decrease in the value of
asset due to wear and tear and passage of
time .
 In reality depreciation is simply a book entry
having the effect of reducing the book value
of the asset and profits of same year for the
same amount .