... generate sales it will hopefully make some profit. A firm's profit, after tax, is an important and inexpensive source of finance. This provides a return on the investment in the business. Research shows that over 60% of business investment come from reinvested, retained profit. The advantages of retained profit is - 1. Firm has more control over the money 2. It reduces gearing. The disadvantages of retained profit is - 1. It is only effective when profits are good. 2. Refusal to use loans in addition to profits can lead to overtrading. Retained profit represents an important source of long-term finance. It adds to a balance sheet's reserves and this is found at the bottom of the sheet. Its overall job is to finance assets and long-term development. b) Operating Profit: This is the measure of profit, which an organisation earns on its normal operations and excluding any extraordinary or exceptional items, which might distort a ...

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