QS Study

Internal Source of Company Capital

Capital is the money or a monetary value by which a firm runs its activities is called the capital of the concerned firm. The total of cash, bank balance, receivables, movable or immovable, visible or invisible properties and their monetary value is the capital of an organization.

Internal Source: From the internal side, a company can raise capital in three ways, these are given below:

Issuing shares: Share issue is the main source of capital for a company. By issuing share a company collects money from the mass people who invest their savings to the company. Though the shareholders are the true owners of a company they are not directly related to the management of the company. But the shareholders can elect the board of directors for management business organization. Here is an important matter that only the public limited company can issue shares to the mass people but the private limited company can only issue share to the members. Issuing share is the main funding source for both public and private limited company.

Retain earnings: Retain earnings is the part of the profit of a company that is not given to the shareholders as a dividend rather kept in the company for further uses. This is also a good internal source of capital. The owners of the retained earnings are shareholders and the company management is liable for that sum.

Reserve: Most of the companies can make a hidden or visible reserve for safety. From a profit of a company, reserve is made to tackle any future problems. This amount is appropriated in profit and loss account. Reserves are often not disclosed to the shareholders. The amount of reserve depends on the management and financial policy of a company. By overstating the depreciation or’ by lessening the profit margin are the ways reserve fund may be kept.

From the above discussion, we can say that these are the different sources from where a company can collect capital for the business organization. A firm must have to use those sources efficiently and effectively for developing the company.