Features of Retained Earnings

The features of Retained Earnings are as follows:

• Cushion of Security: Retained earnings are considered as a cushion of security because they provide support in times of adversity when it becomes difficult for a firm to raise funds from other projects.
   
• Funds for Innovative Projects: Retained earnings are a common source of funds for financing risky and innovative projects. These are generally used for research work, expansion projects, etc.
   
• Medium and Long-term Finance: Retained earnings are considered as ownership funds and serve the purpose of medium and long-term finance.
   
• Conversion into Ownership Securities: Surplus retained earnings can be converted into ownership funds by way of issue of bonus shares. No cash outflow is involved in issuing bonus shares. Investors too are benefitted from the issue of shares free of cost.