accumulation (n)~ Profits that are added to the capital of an organization instead of paid to investors as dividends.
In corporate finance, accumulation refers to profits that are retained by a company instead of being paid out as dividends. These retained earnings are added to the firm’s capital base.
Why Accumulation Matters
Reinvestment and Growth
Retained earnings can finance activities such as expansion, research and development, debt repayment, and equipment investment without using external capital.
Balance Sheet Impact
Accumulation appears in the balance sheet under shareholders’ equity as retained earnings.
Strategic Decision
Management must decide whether to distribute profits via dividends or to retain them for reinvestment. Companies with strong growth prospects often favor reinvestment, while mature firms may distribute more.
Related Concepts
| Term | Explanation |
|---|---|
| Retained Earnings | Another term for profits that are not distributed as dividends. |
| Accumulating Shares | Securities (like certain mutual funds) that automatically reinvest dividends to grow capital, rather than distributing income. |
| Capital Accumulation | In economics, a broader concept referring to increasing capital—physical assets, financial assets, or human/social capital—through profits or savings. |
Summary
- “Accumulation” in corporate/accounting contexts equates to retained earnings.
- These profits are reinvested into the business, strengthening its capital base.
- The decision to accumulate or distribute depends on the firm’s growth strategy, financial health, and investor expectations.