'Ploughing back of profits' holds the key to success of business enterprises. Do you agree? Give three reasons.
Yes, I agree with the statement that the ploughing back of profits holds the key to success of business enterprises because of the following reasons :
(i) Debt position: Profits imply that the business can not only cover the overall expenses but a surplus that can be reinvested in the business to pay off short-term debts.
(ii) Cash flow position: Businesses need to maintain a certain amount of cash from profits that can be used to invest in raw material, maintenance of equipment, etc.
(iii) Attract investors: Profitability allows businesses to raise more capital from investors as it builds more confidence in business by providing higher returns on their investment.