Question

Which source of finance is also known as ploughing back of profits?
(a) Lease financing (b) Commercial paper
(c) Equity Shares (d) Retained Earnings

Answer 1

Answer:

Topic :- Retained Earnings – A Source of Internal Financing

The portion of profits not distributed among the shareholders but retained and used in the business is called Retained Earnings. It is also known as ploughing back of profit, retained capital or accumulated earnings.

Answer 2

d) Retained Earnings source of finance is also known as ploughing back of profits.

Explanation:

• Retained earnings are the earnings of the company which are retained in the business.

• The sum of those profits accumulated over years is re-invested in the business, rather than distributing it as a dividend to shareholders.

• It is the simple and cheapest method of raising funds. It is an important source of internal financing.

• Thus, it is also known as 'Self Financing' or 'Ploughing Back of Profits'.

• Ploughing back of profits means not distributing all the profits to the shareholders and investing some profit back in the business.

• It basically means to retain or invest back the profits in the business.