Question

Advantages of retained earnings company point of view

Answer 1

$\underline{\underline{\mathfrak{\purple{\huge{\: \: ANSWER\: \:}}}}}$ ➡

$\underline{ \underline{ \bold{ \red{ \: \: \: \: RETAINED \: \: EARNINGS \: \: \: \: }}}}$

$\bold{Retained \: \: earings \: \: refers \: \: to \: \: undistributed} \\ \bold{profits \: \: after \: \: payment \: \: of \: \: dividend \: \: and} \\ \bold{taxes.It \: \: provides \: \: the \: \: basis \: \: of \: \: expansion} \\ \bold{and \: \: growth \: \:of \: \: companies.It \: \: is \: \: a \: \: source} \\ \bold{of \: \: internal \: \: financing \: \: or \: \: self - financing} \\ \bold{or \: \: ploughing \: \: back \: \: in \: \: an \: \: organisation \: \: } \\ \bold{depends \: \: on \: \: many \: \: factors \: \: like \: \: net \: \: profits \: ,} \\ \bold{dividend \: \: policy \: \: and \: \: age \: \: of \: \: the \: \: organisation.}$



$\underline{ \underline{ \bold{ \red{ \: \: Advantages \: \: of \: \: Retained \: \: Earnings \: \: }}}}$


$\bold{The \: \: advantages \: \: of \: \: retained \: \: earnings \: \: as} \\ \bold{a \: \: source \: \: of \: \: finance \: \: are \: \: as \: \: follows \: : }$


$\bold{(1) \: \underline{ \pink{ \: Most \: \: Dependable \: \: Source : }}}$


$\bold{Retained \: \: earnings \: \: are \: \: more \: \: dependable \: \: } \\ \bold{ than \: \: the \: \: external \: \: source \: \: of \: \: finance.}$


$\bold{(2) \: \underline{ \pink{ \: Permenant \: \: Source \: : }} }$


$\bold{Retained \: \: earnings \: \: is \: \: a \: \: permanent \: \: source} \\ \bold{of \: \: funds \: \: available \: \: to \: \: an \: \: organisation.}$


$\bold{(3) \: \underline{ \pink{ \: No \: \: Security \: : }}}$


$\bold{Unlike \: \: debentures \: \: no \: \: charge \: \: is \: \: created} \\ \bold{against \: \: the \: \: assets.The \: \: company \: \: is \: \: free} \\ \bold{to \: \: use \: \: its \: \: assets \: \: for \: \: raising \: \: loans \: \: in} \\ \bold{future \: .}$


$\bold{(4) \: \underline{ \pink{ \: No \: \: Cost \: : }}}$


$\bold{It \: \: doesnot \: \: involve \: \: any \: \: explicit \: \:cost } \\ \bold{in \: \: the \: \: form \: \: of \: \: interest \: \: dividend} \\ \bold{or \: \: floatation \: \: cost \: .}$

$\bold{(5) \: \underline{ \pink{ \: No \: \: Fixed \: \: Liability \: : }}}$


$\bold{There \: \:is \: \: no \: \: fixed \: \: commitment \: \: to} \\ \bold{pay \: \: dividend \: \: or \: \: interest \: \:on } \\ \bold{\: \: retained \: \: earnings \: \: as \: \: it \: \: is \: \: company's} \\ \bold{own \: \: money.}$


$\bold{(6) \: \underline{ \pink{ \: Good \: \: Will \: : }}}$

$\bold{Retained \: \: earnings \: \: add \: \: to \: \: financial} \\ \bold{strength \: \: and \: \: improved \: \: creadibility} \\ \bold{of \: \: the \: \: company \: .}$


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