As a source of finance retained profit is better than other sources.Do you agree with this view?Give reason for your answer.Can a company grow indefinitely by reinvesting surplus profits?
As a source of finance retained profit is better than other sources.Do you agree with this view?Give reason for your answer.Can a company grow indefinitely by reinvesting surplus profits?
The surplus profits retained by the enterprise in the business itself are known as Retained Earnings.
Retained Earnings are better than other sources of Finance because of the following reasons:
1. It does not bear any interest cost.
2. Free to be used as per the discretion of the management.
3. Easy availability of the source.
But simultaneously, Retained earnings has some drawbacks also which may affect the indefinite growth of the company, such as:
1. Dissatisfaction among shareholders for not getting or receiving lower Dividends.
2. Misuse of funds.
3. Will affect the market price of shares.
Due to such reasons, Retained Earnings, itself can not lead a company to grow indefinitely.
The surplus profits retained by the enterprise in the business itself are known as Retained Earnings.
Retained Earnings are better than other sources of Finance because of the following reasons:
1. It does not bear any interest cost.
2. Free to be used as per the discretion of the management.
3. Easy availability of the source.
But simultaneously, Retained earnings has some drawbacks also which may affect the indefinite growth of the company, such as:
1. Dissatisfaction among shareholders for not getting or receiving lower Dividends.
2. Misuse of funds.
3. Will affect the market price of shares.
Due to such reasons, Retained Earnings, itself can not lead a company to grow indefinitely.
