Undistributed profits definition
/Undistributed profits are those earnings of a corporation that have not been paid out to investors in the form of dividends. A rapidly-growing business needs earnings to fund its future growth, and so will likely retain all of its earnings. Conversely, a slow-growth company has no internal need for the excess cash, and so will be more likely to pay out a large proportion of dividends.
Example of Undistributed Profits
Failsafe Containment builds reactor vessels. There is a rapidly-growing market for this product in some countries, so the company’s managers have decided to retain all profits within the business, in order to fund that growth. In its most recent year of operations, Failsafe generated $10 million of profits, all of which it elected to retain. The $10 million can be considered undistributed profits.