What is the importance of saving and reinvestment in business?
Answer and explanation
Correct answer: Funds remain available for growth and future needs of the enterprise
Retaining part of the earnings gives an enterprise funds for working capital, equipment, expansion, emergencies, and future opportunities. Reinvestment can improve capacity or quality, while savings can reduce dependence on sudden borrowing. It does not require spending all profit immediately, automatically increase debt, or reduce customers. Thus, option A states the sound financial benefit.
Frequently asked questions
What is the correct answer to this question?
Funds remain available for growth and future needs of the enterprise
Why is this the correct answer?
Retaining part of the earnings gives an enterprise funds for working capital, equipment, expansion, emergencies, and future opportunities. Reinvestment can improve capacity or quality, while savings can reduce dependence on sudden borrowing. It does not require spending all profit immediately, automatically increase debt, or reduce customers. Thus, option A states the sound financial benefit.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Owner’s Funds.
