Question

What is retained earning?

Hint:

Retained earnings = Profits kept in business instead of distributing as dividends.

Answer 1

Step 1: Meaning.
Retained earnings are the portion of net profit that is not distributed as dividends but is kept by the company for reinvestment or to meet future financial needs.
Step 2: Purpose.
- Used for expansion of business operations.
- Helps in meeting contingencies and repayment of debts.
- Avoids over-dependence on external borrowings.
Step 3: Example.
If a company earns ₹10,00,000 profit and distributes ₹6,00,000 as dividends, then the remaining ₹4,00,000 becomes retained earnings.
Step 4: Conclusion.
Retained earnings are an internal source of finance that strengthens long-term stability.