Title: Retained Earnings: Why Companies retain their profits? - GETMONEYRICH
Headings: Retained Earnings: Why Companies retain their profits?
Retained Earnings: Why Companies retain their profits?
What’s Retained Earnings
Retained Earnings Statement (Example)
How Depreciation Affect Retained Earnings?
Where Do Retain Earnings Go?
Use Of Retained Earnings
1. To Fund Working Capital
2. To Fund Fixed Asset Purchase
3. To Fund Other Needs
4. To Pay Dividends in Future
FAQ’s on Retained Earnings
#1. Why company prefer to retain earnings?
#2. When a company may prefer to retain its earnings instead of dividend disbursement?
#3. What happens to retained earnings when a company reports a net loss?
#4. How companies decide of reinvestment of dividend payment?
How to know if the company is generating enough returns or not?
Example 1 – Berkshire
Example 2 – VIP Industries
CONCLUSION
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Content: Working capital is that money which is required to keep the company running. Sufficient working capital helps a company to keep all its stakeholders happy. Employees are happy as they get their salary and pay-hikes on time. Suppliers are happy as they get due payments within schedule. When employees, and suppliers are happy, they together as a team keep the customers happy ensuring future growth prospects. What is working capital? It is the total liquid capital available with the company to manage its day to day operations. Working capital can also be understood as that “portion of current assets which is available with the company to manage daily operations”. Here the useful portion of current assets which can be used to fund working capital is cash, account receivables, and inventory. There are two ways to fund working capital, either it can be done through equity or debt.