A business firm may elect to provide for long-term funding needs by retaining earnings instead of paying dividends to the shareholders.

Question

Quizplus · Accepted Answer

Retaining earnings is a common strategy used by business firms to fund their long-term needs without relying on external sources of capital. By reinvesting earnings back into the business, firms can finance their growth and expansion projects while minimizing their reliance on debt or equity financing. This approach can also signal to investors that the firm is committed to long-term success and is willing to forgo short-term gains in favor of building a stronger business over time.

A Business Firm May Elect to Provide for Long-Term Funding