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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’.
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Answer the question.
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Answer in one sentence.
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Retained earning is simple and cheapest method of raising finance.
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