Reasons for Retaining Revenue Reserves (Retained Earnings)

Retained Earnings (Revenue Reserves)

These are undistributed earnings.  Such reserves are retained for the following reasons:

  • To make up for the fall in profits so as to sustain acceptable risks.
  • To sustain growth through plough backs. They are cheap source of finance.
  • They are used to boost the company’s credit rating so they enable further finance to be
  • It lowers the company’s gearing ratio – reduces chances of receivership/liquidation.
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