Write a short note on ploughing back of profits by companies. What advantages one can accrue out of them?

cbse
sources-of-business

#1

It is the other name of retained earnings. Generally company does not distribute all its profits among the shareholders as dividend. Rather a part of it is retained to form general reserves. This general reserve is used by the company to develop and expand its business. Use of the undistributed profits in this manner is called ploughing back of profits.
Following advantages one can accrue
(i) Company does not have to spend any amount to obtain it.
(ii) The amount lying in the general reserves protects the company from the bad scenario or from ups and downs.
(iii) A company can adopt the policy of stable dividend on the strength of general reserves.
(iv) Expansion plans of the company can he executed easily because of the presence of such reserves.