Impact of retained earnings on the short-term solvency and liquidity: A case assessment of excessive profit ploughing through reduced dividend earnings leading to shareholder dissatisfaction

Abstract

The paper highlights how the concept of retained earnings can actually lead to lower volume of profit in the long run as excessive ploughing of profit may lead to reduced dividend earning among the shareholders and create a sense of dissatisfaction among them. The paper reviews how a proportionate balance must be struck between retaining profits for organizational growth and paying dividends to keep shareholders satisfied. The concept reviews that excessive profit ploughing may cause firms to lose investors who may decide to withdraw their investments from the organization in the long term. The paper also highlights the relation between the level of capital availability and long term solvency level which can impact the profit from operations for the organization.