Retained earnings accurately portray the liquidity position of the firm.

Question

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Retained earnings represent the portion of a company's net income that is not distributed as dividends and is instead retained for reinvestment or future use. While retained earnings can indicate the financial health and profitability of a company, they primarily reflect the company's profitability over time rather than its current liquidity position. The liquidity position of a firm is better represented by its current assets and liabilities, such as its cash on hand, accounts receivable, and outstanding debt.

Retained Earnings Accurately Portray the Liquidity Position of the Firm