Retained Earnings (Revenue Reserves)
These are undistributed earnings. Such reserves are retained for the following reasons:
- To make up for the fall in profits so as to sustain acceptable risks.
- To sustain growth through plough backs. They are cheap source of finance.
- They are used to boost the company’s credit rating so they enable further finance to be
- It lowers the company’s gearing ratio – reduces chances of receivership/liquidation.
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