What is meant by 'retained profit'?

Retained profit refers to the portion of a company’s earnings that is retained within the business rather than distributed to shareholders as dividends. This profit is often reinvested into the company for purposes such as funding new projects, expanding operations, paying off debt, or improving existing products and services. Retained profits are crucial for a business's growth and sustainability, as they provide a source of internal financing that can help mitigate the need for external borrowing or the issue of new shares.

The other options describe different financial concepts. Sharing profits with shareholders is related to dividends, which are distributions of earnings. The owner’s initial capital investment refers to the money initially put into the business, which is a distinct concept from retained profits. Cash flow from sales represents the money generated from selling goods or services, but it does not specifically denote profits that are retained. Thus, the concept of retained profit is focused specifically on the reinvestment of earned income back into the business.