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The disadvantages of using retained earnings as a source of finance to the company.
1. Easily misused by the management as it may be invested in areas which are prejudicial to majority shareholders.
2. Retained earnings once used will leave not shield to take care of contingencies exposing the company.
3. The finance can easily be mis-invested in areas of quite low returns.
4. the source involves a lot of sacrifice to the ordinary shareholders inform of opportunity cost
5. Easily invested in high risk investments
lydiajane74 answered the question on May 9, 2018 at 19:29
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