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प्रश्न
What has retained earnings? Explain any two of its merits and two of its demerits.
उत्तर
Like an individual, companies too, set aside a part of their profit to meet future requirements. The portion of profits not distributed among the shareholders but retained and used in the business is called retained earnings. It is also referred to as ploughing back of profit. This is one of the important sources of internal financing used for fixed as well as working capital. Retained earnings increase the value of shareholders in the case of a growing firm.
Merits:
Cheaper Source of Financing: The use of retained earnings does not involve any acquisition cost. The company has no obligation to pay anything in respect of retained earnings.
Financial Stability: Retained earnings strengthen the financial position of a business and thereby give financial stability to the business.
Demerits:
Improper Utilization of Funds: If the purpose of utilization of retained earnings is not clearly stated, it may lead to careless spending of funds.
Over-capitalization: Conservative dividend policy leads to a huge accumulation of retained, earnings leading to over-capitalization.
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संबंधित प्रश्न
Select the correct answer from the options given below and rewrite the statement.
Retained earnings are ______ source of financing.
Find the odd one.
Correct the underlined word and rewrite the following sentence.
Retained earnings is an external source of finance.
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 disadvantages of retained profits as a source of finance.
