Page 259 - Corporate Finance PDF Final new link

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BRILLIANT’S Dividend Decision 259

PLOUGH BACK OF EARNINGS / A{Zª½g H$m ßbmC ~¡H$

Q.28. What do you mean by "Ploughing back of profits"? For what purpose can it be used by
the company?
''àm°{’$Q²>g H$s ßbmCB§J ~¡H$'' go AmnH$m ³¶m Ame¶ h¡? {H$g CÔoí¶ Ho$ {bE ¶h H§$nZr Ûmam Cn¶moJ {H$¶m
Om gH$Vm h¡?
OR
Explain the main advantages of ploughing back of profits to:
{ZåZ{b{IV Ho$ {bE àm°{’$Q²>g H$s ßbm°CB§J ~¡H$ Ho$ ‘w»¶ bm^ g‘PmB¶o…

(a) Company / H§$nZr;
(b) Shareholders; and / eo¶ahmoëS>g©; VWm
(c) Society / gmogm¶Q>r
Also write the Demerits of Ploughing back of Profits.
àm°{’$Q²>g Ho$ ßbm°CB§J ~¡H$ H$s hm{Z¶m± ^r {b{IE&

Ploughing Back of Profits /Retained àm°{’$Q²>g H$s ßbm°CB§J ~¡H$/[aQ>|S> A{Zª½g
Earnings
'Ploughing back of profits' is an important 'àm°{’$Q²>g H$s ßbm°CB§J ~¡H$' EH$ H§$nZr Ûmam Am§V[aH$
source of internal or self financing by a com- ¶m goë’$ ’$m¶Z|qgJ H$m EH$ ‘hÎdnyU© òmoV h¡& ¶h ñd¶§
pany. It refers to the process of retaining a part ì¶mnma ‘| [aB§dopñQ>JoqQ>J Ho$ CÔoí¶ Ho$ {bE H§$nZr H$s ZoQ>
of the company's net profits for the purpose of
reinvesting in the business itself. In other àm°{’$Q²>g H$m EH$ ^mJ àmßV H$aZo H$s à{H«$¶m H$m g§X^© XoVm
words, the savings generated internally by a h¡& Xÿgao eãXm| ‘| '[aQ>|S> A{Zª½g' Ho$ ê$n ‘| H§$nZr Ûmam
company in the form of 'retained earnings' are Am§V[aH$ ê$n go CËnÝZ ~MV BgHo$ ì¶mnma Ho$
ploughed back into the company for diversifi- S>m¶d{g©{’$Ho$eZ ‘| {bE H§$nZr ‘| ßbm°C ~¡H$ H$s OmVr h¡&
cation of its business. It is actually the amount ¶h dmñVd ‘| H§$nZr Ho$ eo¶ahmoëS>g© Ho$ {bE C{MV {S>{dS>|S>
held back by the entrepreneur after paying a
reasonable dividend to the shareholders of the H$m ^wJVmZ H$aZo Ho$ níMmV² EÝQ´>oàoݶmoa Ûmam dmng br J¶r
company and these undistributed profits are am{e h¡ VWm ¶o A{dV[aV bm^ H§$nZr Ûmam BgHo$ dV©‘mZ
used by the company to meet its present and VWm ^{dî¶ H$s ’$m¶Z|{e¶b Amdí¶H$VmAm| H$mo nyam H$aZo
future financial requirements. This reduces Ho$ {bE H§$nZr Ûmam Cn¶moJ {H$¶o OmVo h¢& ¶h CZH$s
their dependence on funds from external {Z¶{‘V ì¶mnma Amdí¶H$VmAm| H$mo ’$m¶Z|g H$aZo Ho$ {bE
sources in order to finance their regular busi-
ness needs. Such a source of finance may be ~mø òmoVm| go ’§$S²>g na CZH$s {Z^©aVm H$mo H$‘ H$aVm h¡&
used by the company for the following pur- ’$m¶Z|g H$m Eogm EH$ òmoV {ZåZ{b{IV CÔoí¶m| Ho$ {bE
poses: H§$nZr Ûmam Cn¶moJ {H$¶m Om gH$Vm h¡…
 For expansion and growth of the business  ì¶mnma Ho$ {dñVma VWm {dH$mg Ho$ {bE
 For strengthening the financial position of  H§$nZr H$s ’$m¶Z|{e¶b pñW{V gwÑ‹T> H$aZo H$o {bE
the company