long as a firm does not pay out 100% of its earnings, the firm's annual profit that is retained in the business (i.e., the addition to retained earnings) is another source of funds for a firm's expansion.

Question

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Retained earnings refer to the portion of a company's net income that is kept by the company instead of being distributed as dividends to shareholders. This retained earnings can be used by the company for future investments and expansion. Therefore, as long as a firm retains a portion of its earnings and does not pay out 100% as dividends, it can use the retained earnings as a source of funds for its expansion.

Long as a Firm Does Not Pay Out 100% of Its