Reinvestment of earnings is the result of reinvestment of earnings into the firm.
We could go on and on here about Reinvestment, but the important thing to remember is that the Reinvestment principle is about what we call the “revenue cycle” of the firm. When a firm is doing well enough to make new money, it will reinvest that new money into the firm in the form of bonuses. And the bonus will be used to pay future bonuses which, in turn, will be used to pay future profits.
And bonus payments in turn will be used to pay future profits. So when we say that we “reinvest” in a firm, we are not talking about simply taking money out of it, but rather the process of making money and putting it to work elsewhere in the business.
So if we are going to invest in a firm, we need to know how much money it is making. And that is simply the net income that a firm makes. Since the firm in question is one that makes a lot of money, the net income it makes is also very large. So the net income that the firm reinvests into itself is the net income it makes.
Now that we have more information about what a firm is really doing in terms of net earnings and the net income it makes, it’s time to put the net income into perspective. For example, the net income the firm makes depends on whether it makes enough money to pay those bills and to make enough money to pay those people who have given them money, or whether it makes enough money to pay for the same things they don’t have, such as the clothes they have.
Most firms never make a dime of money. But they do make lots of money. For example, a firm that makes money by buying and selling companies that then make money doing the same things is called an investment bank. A firm that makes money by investing in companies that make money doing the same things is called an investment company. The net income they make depends on the amount of money they have to invest in companies that make money doing the same things.
Most firms don’t make net income from their investments. A firm that makes money by buying and selling companies that then make money doing the same things is called an investment bank. A firm that makes money by investing in companies that make money doing the same things is called an investment company. The net income they make depends on the amount of money they have to invest in companies that make money doing the same things.
The net income that a firm reinvests in itself is all the money it reinvested in other companies. A firm that makes money by investing in companies that make money doing the same things is called a dividend fund. A firm that makes money by investing in companies that make money doing the same things is called a stock fund or a mutual fund.