Dear Student,
A Company distributes its earnings to the shareholders as dividends. However, all the earnings are not distributed, a portion of the earnings is retained for use in the future. This amount so retained is called as "Retained earnings". Since the earnings from the business retained are again used in the business to earn profits, it is termed as"ploughing back of profit".
The company has a policy that specifies the amount of earnings to be retained. The amount so retained is mainly utilised for future expansion programmes and for meeting the fixed or working capital needs of the company. Since the company uses its own finance for these purposes instead of borrowing funds from third parties, it is called as "self-financing".
Regards,