While we are looking for sources funds it is other than natural to start searching from home. What do we have? During examining the requirement for working capital we could also make an assessment like to whether the existing working capital is adequate or not. Hence, the first internal source is any surplus working capital that we may be having.
If we have any non-current assets that do not have any utilize they could be disposed off, thereby generating additional working capital. Please notice that it is not a regular and continuing source of funds.
We have seen previous that every profitable sale brings along with it funds in excess of what was expended upon the goods sold. Conversely, profits generated through the business contribute in the directions of additional working capital. However you may also notice that whenever we measure profits, we competition the revenue against all expenses concerning to the revenue, whether this involves use of funds in the current period or not. Hence the profits measured do not reflect the real amount of funds available so as to assess the actual funds generated from current operations we should add back to the profits: all those items of expenses not including utilize of funds during the current period. One main example of that an item is depreciation.
Hence we could summaries the important possible sources of funds, given below as:
1. Funds generated by operations. It is, profit plus depreciation and other amortizations.
2. Sale of non-current assets
3. Any surplus working capital. Did you guess properly?