Question

Define “Ploughing back of profits”.

Solution

Ploughing back of profits means investing “part of business profits” in the business. We know that generally firms do not distribute the whole of profits as dividend. They keep a part of it to use in business.
The part of profit is not distributed is called retained profit. Ploughing back of profits is the most convenient and economical method of financing. It makes the company strong and increases capital formation.

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