Internal sources:

• Retaining profits reduces cash available for other purposes due to opportunity cost.
• Internal sources of finance refer to funds generated from within a business's own operations
• Depreciation is the annual reduction in the value of fixed assets
• Internal sources allow a business to avoid external borrowing or investors.


  True
• Why is the sale of assets considered an internal source of finance?

  Generates cash flow
• How do internal sources help maintain control in a business?

  Avoid sharing ownership
• Match the limitation with its description:

  Limited Funds ↔️ Insufficient for major projects

  Slow Growth ↔️ Limits the pace of expansion

  Opportunity Cost ↔️ Reduces cash for other purposes

  Depletion of Assets ↔️ Reduces future borrowing capacity
• What is the opportunity cost of using retained profits?

  Reduces cash for other uses
• What is the impact of relying solely on internal sources of finance on the pace of growth for a business?

  Limits the pace of growth
• Why do businesses often supplement internal sources with external sources of finance?

  To fund growth and development
• Match the internal source of finance with its description:

  Retained Profits ↔️ Profits kept for reinvestment

  Sale of Assets ↔️ Selling unused fixed assets

  Depreciation ↔️ Reduction in asset value

  Owner Investment ↔️ Capital from business owners
• What is the role of depreciation in generating cash flow for internal financing?

  Reduces asset value annually
• Using internal sources allows business owners to retain full control over the company.
• What are retained profits used for in a business?

  Reinvestment
• Match the internal source with its description:

  Retained Profits ↔️ Profits kept for reinvestment

  Sale of Assets ↔️ Selling unused fixed assets

  Depreciation ↔️ Reduction in asset value
• Order the process of generating internal finance from retained profits:

  1️⃣ Business generates profits

  2️⃣ Shareholders receive dividends

  3️⃣ Business retains remaining profits

  4️⃣ Retained profits are reinvested
• Owner investment provides funds without increasing debt.


  True
• Internal sources provide greater flexibility to respond to market changes.


  True
• The amount of funds available from internal sources may be insufficient
• Retaining profits reduces the cash available for other purposes due to opportunity cost.
• What is a common limitation of internal sources of finance regarding major investments?

  Insufficient funds
• What is the purpose of retained profits as an internal source of finance?

  Reinvest into the company
• Internal sources of finance allow a business to grow without relying on external lenders or shareholders.


  True
• Arrange the following advantages of internal sources in order of importance for a small business:

  1️⃣ Self-financing

  2️⃣ Maintain Control

  3️⃣ Flexibility

  4️⃣ Cost-effective
• Continuously selling assets to fund operations can deplete the business's asset base.


  True
• The sale of fixed assets generates cash flow for the business.


  True
• What is the primary benefit of owner investment?

  Additional capital
• Retained profits allow a business to reinvest for growth
• Internal sources of finance allow a business to be self-financing
• Why are internal sources cost-effective compared to external sources?

  No interest or equity dilution
• Relying solely on internal sources can slow down the growth of a business.


  True
• To overcome the limitations of internal sources, businesses often turn to external sources of finance
• Depleting assets through continuous selling reduces future borrowing capacity.


  True
• Relying solely on internal sources limits the business's growth rate.
• Internal sources allow a business to fund operations without external borrowing or investors.
• What is a key advantage of using internal sources of finance for a business?

  Self-financing
• What is a major limitation of internal sources of finance in financing major expansions?

  Limited funds
• What is a common strategy businesses use to balance the limitations of internal sources of finance?

  Supplement with external sources