Funding by internal accruals

Hi everyone,

Could someone explain to me what it means to fund growth by internal accruals?

Link: https://economictimes.indiatimes.com/wealth/personal-finance-news/internal-accruals-alone-enough-to-fund-growth-says-tata-aig/articleshow/26216815.cms

My understanding is that internal accruals refer to shareholders equity. How exactly do you fund growth by that? Should you be using cash on the balance sheet to fund growth instead?

Thanks.

Retained earnings accrue in Equity and it is invested back into the business.

Seems like it just means that division is earning money itself, and it uses that money to fund its own operations.

BU Cash flows will be utilized by self-financing. Retained nor current earnings wouldn’t be transferred to parent by dividend payout or cash pooling.

Thanks for the reply.

But retained earnings isn’t cash. How exactly do you spend it?

Thanks but can you elaborate on your second sentence?

Do you mean that BOTH Retained AND current earnings WOULD be transferred to parent by dividend payout or cash pooling?

This seems to make more sense to me.

Yep. The parents like to do it because of high leverage effect which strongly affects ROE.

However, if a particular unit is high above average related to other BUs in cash and profit generating and there is a some strong project, BU managers are temporary permitted to retain earnings and use earned cash for financing the project.

Retained earnings are supposed to be accumulated cash (Asset side offsetting account). Otherwise BU Managers have to clarify why it isn’t so.