The correct answer is: B. Financial soundness of a company
Retained earnings are the accumulated net income of a company that has not been distributed to shareholders as dividends. They can be used to finance future growth, invest in new projects, or repay debt. Retained earnings can also be used to increase the company’s cash reserves, which can provide a cushion against unexpected expenses or losses.
Financial soundness is a measure of a company’s ability to meet its financial obligations. A company with a strong financial position is able to pay its bills on time, has a healthy cash flow, and has a low level of debt. Retained earnings can contribute to a company’s financial soundness by providing a cushion against unexpected expenses or losses.
Option A is incorrect because retained earnings can actually help to prevent financial disaster. By providing a cushion against unexpected expenses or losses, retained earnings can help to keep a company afloat during difficult times.
Option C is incorrect because retained earnings are not necessarily a bad thing. In fact, they can be a sign of a healthy company. A company that is able to generate strong profits and retain those profits is likely to be a financially sound company.
Option D is incorrect because retained earnings are not liabilities. Liabilities are debts that a company owes. Retained earnings are not debts; they are simply the accumulated net income of a company that has not been distributed to shareholders as dividends.