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प्रश्न
Discuss the disadvantages of retained profits as a source of finance.
Describe the disadvantages of Retained Earnings.
उत्तर
- Low Dividends: Ploughing back of profits reduces the current rate of dividends. This may result in dissatisfaction among the shareholders as they do not get the expected rate of dividend.
- Misuse and Speculation: Excessive reserves may make the management wasteful and extravagant. Management may misuse them by investing in unprofitable or undesirable channels. A company having large reserves may prompt its directors to indulge in speculation in the prices of its shares.
- Unbalanced Growth: Retained profits may interfere in the balanced industrial growth of the country. The profits which might have been invested in other industries are reinvested in the same industry.
- Overcapitalisation: Too much ploughing back of profits may prompt management to issue bonus shares. Frequent capitalisation of reserves may result in overcapitalisation.
- Uncertain: Retained profits are an uncertain source of funds when the profits of the company fluctuate widely.
Notes
Students should refer to the answer according to their questions.
संबंधित प्रश्न
Answer the question.
Discuss three advantages of plowing hack of profit, from the company’s point of view.
What has retained earnings? Explain any two of its merits and two of its demerits.
Find the odd one.
Explain the following term/concept.
Ploughing back of profit
Justify the following statement.
Retained earning is simple and cheapest method of raising finance.
Explain any four disadvantages of Retained Earnings.
What are retained earnings?
What are retained profits called "self financing"?
What are retained profits?
Discuss the advantages of retained profits as a source of finance.
