Question

“Ploughing back of profit is not possible for every company’-Explain statement.

Answer 1

• A company retains profits in the good times of business.
• A company can only retain profits if it does not have liability more than its assets. For a new company, a small company or a financially weak company making profits and maintaining its position against strong and established companies itself is a challenge.
• Moreover, such companies also need to invest more in modernization, expansion and innovation of their business so that they can have a strong foot in market.
• They also need to provide dividends to maintain the faith of investors and encourage them investing in their company. Hence, retaining profits is not possible for every company.