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