Internal sources of finance refer to capital that a company generates from its own operations or existing assets, rather than borrowing or raising funds externally. The primary internal sources include retained earnings (profits reinvested in the business rather than distributed as dividends), depreciation allowances (the accounting allocation of asset costs over time, which generates cash reserves), sale of surplus assets (liquidating equipment or property the company no longer needs), and personal savings or owner contributions in smaller businesses. Retained earnings is typically the most significant internal source for established companies, as it represents accumulated profits that can be deployed for expansion, research, or debt repayment. Depreciation is sometimes called an internal source because although it's a non-cash accounting entry, it reduces taxable income and allows companies to retain more cash that would otherwise go to taxes. Unlike external sources such as bank loans, venture capital, or public stock offerings, internal sources don't require interest payments, dilute ownership, or involve external stakeholders in decision-making. However, relying solely on internal sources can limit growth speed, especially for capital-intensive businesses. The distinction matters for financial planning: internal sources are slower to accumulate but carry no obligation to repay creditors or satisfy external investors.