The 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 one of the ways in which a business firm can provide for its long-term funding needs. When a firm retains its earnings, it does not distribute them as dividends to its shareholders but instead uses them for various purposes such as funding new projects, expanding operations, or paying off debt. Retaining earnings is often seen as a viable option for firms that are in a growth phase or have limited access to other sources of funds.

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