Sources of funding for the corporate sector

Funds required for efficient and effective operations in corporations are obtained from two main sources; internal and external.

Internal sources

These include funds generated through retained earnings or profits and sales of company assets. Retained earnings refer to part of the company’s profit that is not distributed to shareholders in a form of dividend, but withheld for present and future expansion projects. In some cases, management may deem it necessary to dispose of or sell some of the company’s assets due to wear and tear; the introduction of more sophisticated machinery than previous or existing ones; or the need to pay off debts. Proceeds from the sales serve as source of internal funds to the organisation.

 External sources

These comprise funds raised through borrowing and sale of shares in the primary markets. Borrowing includes contracting of loans from financial institutions and sale of financial securi