The sole aim of every business organization is to earn profit. These profits
after taxes should go to owners either in the form of dividend or a portion of this is kept for future in the form of Retained earnings.
There is no prescribed set norm as to how much profit be given as dividend and how much to be retained, it is the will of the management to decide the ratio of its distribution.
Thus, the problem of distribution of dividend should be decided on the basis of past experience. The management has to frame a policy popularly known as “Retained Earnings and Dividend Policy”. In this chapter, a detailed study of the two is discussed in length.