The internal financing is a technique under which all profits of a company are not distributed amongst the shareholders as dividend, but a part of the profit is re-invested in the company. This process of retaining profits year after year and their utilization in the business is also known as ‘ploughing back of profits.’

These retained earnings are used in future for funding innovation and growth programmes and for fulfilling the fixed or working capital needs of the company. Since it means dependence on inner resources to meet up the fiscal requirements of the company.

It is basically a frugal step that a company takes, in the sense that instead of dispersing the total profits by way of dividends, it keeps a certain portion of it to be re-introduced into the business enterprise for its expansion. This is also known as ‘self-financing’ or ‘inter financing.’

This is considered as an idyllic technique of financial growth strategies because there is no instant pressure to pay any return on this portion of stockholders’ equity. It is an adjunct of sound financial management. It creates no lawful formalities as make borrowing either from the public or from the banks. The strategy of internal financing is the best method of financing the projects of recognized businesses without troubling their capital structure.