DEFINITION of Undivided Profit
Undivided profits refer to gains from current and past years that have not been transferred to a surplus account or distributed as dividends to shareholders. Often times, financial gains or budget surpluses are set aside in a separate account designated as a surplus account, are earmarked for distribution as dividends, or assigned to another purpose such as funding a project. Essentially, undivided profit refers to corporate earnings that have been allowed to accumulate over a period of time as opposed to being disbursed for other purposes.
BREAKING DOWN Undivided Profit
Current earnings may be credited to the undivided profits account and will eventually either be distributed to shareholder in the form of dividends or will be held within the company in the form of retained earnings. Dividend distributions signal strong financial strength within the company while retained earnings can be used to further future growth. The desired strategy may depend on the amount of profit generated and the potential for value maximizing projects.