As 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.

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Retained earnings are the portion of a company's net income that is not distributed as dividends but is instead reinvested in the business or used to pay off debt. These retained earnings can be used as a source of funds for a firm's expansion, as long as the company does not pay out 100% of its earnings.

As Long as a Firm Does Not Pay Out 100