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Question
Explain the following term/concept.
Ploughing back of profit
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Solution
- Retained earnings are the earnings of the company which are retained (reinvested) in the business. The sum of those profits accumulated over years is reinvested in the business, rather than distributing it as a dividend to shareholders.
- It is the simplest 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’.
RELATED QUESTIONS
Answer the question.
Discuss three advantages of plowing hack of profit, from the company’s point of view.
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Retained earnings are ______ source of financing.
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The policy of using undistributed profit for the business.
Answer in one sentence.
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Correct the underlined word and rewrite the following sentence.
Retained earnings is an external source of finance.
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Retained earning is simple and cheapest method of raising finance.
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