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Explain Retained Earnings/ Ploughed back profits.
The profit earned by the company is diversified in three ways: taxation, dividend payments and ploughing back profits. Retained earnings are the profits generated by a company that are not distributed to shareholders as dividends but kept as a reserve for fixed capital as well as for working capital requirements for expansion and development schemes. In other words, it is the amount held back by the company after paying a reasonable dividend to its shareholders and these undistributed profits are then used by the company to meet its present and future financial requirements. This reduces the dependence on external sources for funds in order to finance their regular business transactions.
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