Alpha Inc.saw an increase in profits in the previous year following which the management decided to reinvest earnings. These retained earnings will be used to:
A)meet the company's long-term financial needs.
B)meet the company's short-term financial needs.
C)pay the owners a dividend.
D)increase the liquid assets of the company.

Question

Quizplus · Accepted Answer

Retained earnings are the profits that a company chooses to reinvest in the business rather than distribute as dividends to shareholders. Since Alpha Inc. saw an increase in profits in the previous year, it makes sense for the company to utilize retained earnings to meet its long-term financial needs, such as investing in new products, expanding the business, or paying down debt. Using these earnings to meet short-term financial needs or paying a dividend would not be the best use of the funds. Increasing the liquid assets of the company is also not a necessity unless the company faces a liquidity crisis.

Alpha IncSaw an Increase in Profits in the Previous Year Following