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As a source of finance retained profit is better than other sources. Do you agree with this view? Give reasons for your answer.

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Yes, we agree. Retained earnings are better than other sources of finance because:

  • Retained earnings is a permanent source of funds which an organization can avail of.
  • It enhances capacity of the business to absorb unexpected losses.
  • It does not involve any explicit cost in the form of interest, dividend or flotation cost.
  • It may increase the process of equity shares of a company.
  • There is a greater degree of operational freedom and flexibility as the funds are generated internally.

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