What does retained profit refer to?

Retained profit refers to the portion of a company's net income that is kept within the business rather than being distributed to shareholders as dividends. This profit is often reinvested in the business for various purposes, such as funding new projects, expanding operations, paying down debt, or saving for future contingencies. By retaining profits, a business can strengthen its financial position and support long-term growth.

This concept is crucial for businesses that aim to increase their operational capabilities and ensure sustainability in a competitive market. Retained profits act as an internal source of financing, allowing businesses to invest in research and development, new technology, or other strategic initiatives without needing to seek external funding.

In contrast, the other options highlight different financial aspects. Distributing money to shareholders represents cash outflows rather than retained funds. Short-term cash flow focuses on the liquidity available for immediate operational needs, while liquid assets refer to those that can be quickly converted to cash, neither of which encapsulate the essence of retained profits.