Under this technique, the profits of a company are not distributed amongst the shareholders, but are retained in the business for any future investment. These profits are retained year after year and being utilised in the business. By not distributing the profits as dividend, business can keep the profits to be reintroduced in the business for development. Sometimes, profits are kept as reserves by not informing the shareholders. Ploughing back of profits process helps in economic stabilisation and overall growth of the firm.
- For making company self dependent.
- For survival and growth of the business.
- For contribution towards the capital needs of the business.