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Make a list of three limitation of retained profits.

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Disadvantages of Retained Earnings: Retained earnings are the result of conservative dividend policy of the company and are associated with following demerits: i. Improper Utilization of Funds: If the purpose for utilization of retained earnings is not clearly stated, it may lead to careless spending...
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Disadvantages of Retained Earnings:

Retained earnings are the result of conservative dividend policy of the company and are associated with following demerits:

i. Improper Utilization of Funds: If the purpose for utilization of retained earnings is not clearly stated, it may lead to careless spending of funds.

ii. Over-capitalization: Conservative dividend policy leads to huge accumulation of retained earnings leading to over-capitalization.

iii. Lower Rate of Dividend: Retained earnings do not allow shareholders to enjoy full benefit of the actual earnings of the company. This creates not only dissatisfaction among the shareholders but also adversely affect the market value of shares.

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