CameraIcon
CameraIcon
SearchIcon
MyQuestionIcon
MyQuestionIcon
1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

why ploughing back of profits called self financing also explain the concept of ploughing back of profit

Open in App
Solution

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,

flag
Suggest Corrections
thumbs-up
0
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Inputs to Outputs
ECONOMICS
Watch in App
Join BYJU'S Learning Program
CrossIcon