What is retained profit?

Retained profit refers to the portion of a company's net earnings that is retained within the business rather than distributed to shareholders as dividends. This retained earnings can be reinvested into the business for various purposes, such as funding new projects, purchasing new equipment, expanding operations, or improving existing facilities. This choice directly reflects the concept of using profits to bolster the company’s growth and financial stability, which allows it to fund future investments without needing to rely solely on external financing.

The other options describe different aspects of profit management. Distributing profit among shareholders or using it solely for dividends does not align with the concept of retention within the business, while profit used for tax payments pertains to an obligation rather than a retained earning strategy. Understanding retained profit is essential for grasping how companies utilize their earnings to foster ongoing development and sustain long-term success.