Business (Y12) - Sources of finance - Retained profits

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6 Terms

1
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What are retained profits?

Profits that are reinvested into the business

2
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Are retained profits a long-term or short-term source of finance?

Long-term

3
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Are retained profits an internal or external source of finance?

Internal

4
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What are the key features of retained profits?

Comes from profitable trading, kept in the business or paid as dividends, highly flexible as shareholders are in control, doesn’t have zero cost as there’s an opportunity cost

5
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What are the benefits of retained profits?

Flexibility, owners in control, low cost, can be substantial

6
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What are the drawbacks of retained profits?

Drain on finance if making a loss, danger of hoarding profits, opportunity cost for shareholders