Retained Profit - GCSE Business Definition

What is retained profit?

In GCSE Business, retained profit is profit that has been generated in previous years and has not been distributed to owners. Retained profit is often reinvested back into the business to fund growth or invested to gain interest in a savings account.

Retained profit is a cheaper source of finance, as it does not involve borrowing and the associated interest payments or arrangement fees. However, there is an opportunity cost of using retained profit as a source of finance because, once it has been used up, it is not available as a contingency for other purposes.

Businesses with retained profit have a financial buffer to help them cope with extermal challenges such as economic downturns or rapid market change. They are also viewed favourably by investors, as retained profit indicates business stability.