FINANCIACION INTERNA | AUTOFINANCIACION | Economía de la Empresa 2 Bachillerato 91#
Internal Funding and Its Sources in Business Economics
Understanding Internal Financing
- Internal financing, also known as self-financing, refers to funds generated by a company through its own activities. It is crucial for maintaining financial independence.
- There are two main types of self-financing:
- Enrichment Self-Financing: Funds used for new investments aimed at growth, primarily derived from reserves.
- Maintenance Self-Financing: Funds aimed at maintaining production capacity, including amortizations and provisions.
Types of Reserves
- Reserves are part of enrichment self-financing and consist of undistributed profits that contribute to the company's own funds. They can be categorized into three types:
- Legal Reserves: Mandated by law for public limited companies.
- Statutory Reserves: Established based on agreements among partners included in the company bylaws.
- Voluntary Reserves: Created through voluntary agreements during general shareholders' meetings.
Amortizations Explained
- Amortizations represent funds allocated to replace the loss of value in productive equipment over time. This is recorded as a cost but does not reflect actual cash outflow.
- For example, if a boat worth €40,000 depreciates at 5% annually, it loses €2,000 each year. This amount is accounted for as an expense while being saved for future replacement.
Provisions and Their Importance
- Provisions are funds set aside to cover anticipated future expenses or losses when their timing or amount is uncertain. This practice follows the principle of prudence.
- An example includes setting aside estimated costs for necessary repairs without knowing when they will occur or how much they will cost.
Advantages and Disadvantages of Self-Financing
- Advantages include:
- Accessing funds without incurring debt or interest payments.
- Serving as a primary financial source for SMEs due to challenges in obtaining external financing.
- Enhancing company autonomy by reducing reliance on loans.
- Disadvantages include:
- Slow generation of self-financed funds.
- Reduced distribution of profits to partners due to retained earnings.