5 Limitations of retained earnings

Dear student, 
The following are some of the limitations of retained earnings as a source of finance:
  1. Being dependent on profit they are uncertain. 
  2. If the company keep higher retained earnings, it distributes less dividends to the shareholders. 
  3. It leads to dissatisfaction among the shareholders. 
  4. It ,ay result in misuse or sub-optimal utilisation of funds. 
  5. The company may use the funds to issue bonus shares to equity shareholders, which in turn, may result in over capitalisation.  

  • 4
1. Careless use 2. Dissatisfaction among shareholders 3.over-capitalisation 4. Imbalanced growth.
  • 2
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