Question

Discuss three advantages of ploughing back of profit, from the company's point of view.

Answer 1

Ploughing back of profits means not distributing all the profits to the shareholders and investing some profit back in the business. The three advantages of ploughing back of profits are:-

1) No need to finance from outside sources.

2) Cost of procuring capital is low and hence, increases the share value.

3) No fixed obligation to pay any interest because the company is using its own funds.