Which of the following is an internal source of finance?

Sources of finance can be broadly categorized as internal or external. Internal sources are funds generated within the business itself, typically from its operations, while external sources come from outside the business.

• Retained earnings is the correct answer. These are profits that a company chooses to keep and reinvest in the business rather than distributing them to shareholders as dividends. Since these funds are generated from the company's own operations and kept within the business, they are a classic example of an internal source of finance, representing self-financing.
• Rights issue is incorrect because, while offered to existing shareholders, it involves raising new capital from outside the company's operational profits, making it an external source of finance.
• Bank loan is incorrect as funds borrowed from a financial institution are clearly an external source of finance, requiring an agreement with an outside party.
• Debentures are incorrect because these are long-term debt instruments issued to the public or institutional investors, representing an external source of finance that brings capital into the company from outside.