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Retained profit is the profit kept in the company rather than paid out to shareholders as a dividend. Retained profit is widely regarded as the most important long-term source of finance for a business.
Not all businesses make a profit. But when they do, the owners face a choice:
• Take the profit out of the business – either as personal income or via a payment to shareholders
• Effectively reinvest the profit by leaving it in the business
Of course the owners can decide to do a little of both – pay a limited dividend and leave the remaining part of the profit in the bank.
Retained profits are an important and attractive source of finance for most profitable businesses. Why?
- Retained profits are a very cheap form of finance. What is the cost? Really it is only the return that shareholders could earn if they had their dividend payment (this is known as an opportunity cost). In cash terms, retained profits are “free” to the business – there is no interest to be paid.
- Retained profits are also very flexible. They can be left in the business as cash in the bank. They can be invested in more fixed assets, extra stocks and so on.
- Retained profits are also under the control of the business. It is up to the business owners to decide what to do with them, not the bank manager.
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Business Studies Revision / Exam Coaching Workshops Coming Up:
Thursday 24 April 2014 - Birmingham
Friday 25 April 2014 - London (Stratford City)
Monday 20 January 2014 - London (Stratford City)
Tuesday 21 January 2014 - London (Fulham Broadway)
Wednesday 22 January 2014 - Bristol (Cribbs Causeway)
Thursday 23 January 2014 - Birmingham (Star City)
Friday 24 January 2014 - Manchester (Salford Quays)
Tuesday 25 March 2014 - London (Stratford City)
Wednesday 26 March 2014 - London (Fulham Broadway)
Thursday 27 March 2014 - Bristol (Cribbs Causeway)
Friday 28 March 2014 - Birmingham (Star City)
Tuesday 1 April 2014 - Newcastle (Metro Centre)
Wednesday 2 April 2014 - Leeds (The Light)
Thursday 3 April 2014 - Manchester (Salford Quays)
Post-Easter (BUSS1/BUSS2 Combined & BUSS4)
Monday 28 April 2014 - London (Stratford City)
Tuesday 29 April 2014 - London (Fulham Broadway)
Wednesday 30 April 2014 - Bristol (Cribbs Causeway)
Thursday 1 May 2014 - Birmingham (Star City)
Friday 2 May 2014 - Manchester (Salford Quays)
Try some of these superb starter activities for Business Studies:
- Anagram Countdown
- Beat the Teacher
- Budget Basket
- Memory Challenge
- Loop Cards
- I'm the Question
- Catchphrase - Say What You See!
- Consider All Possibilities (C.A.P)
- Teacher Talkabout
- Perfect Recall
- Pass the Buck
- What would you have invented?
- These are a few of my favourite things
- Set Your Students the 15 Word Challenge
- Topic Tennis
- What Why Depends - Developing Thinking Skills
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