Unappropriated profit is defined as earnings that are not required in order to pay out dividends to shareholders of the company. Essentially, these earnings may be used in several different ways to strengthen the position of the corporation. Because unappropriated profit is considered to be earned surplus, it is not committed to any budget item, and can be utilized in any manner that is deemed in the best interests of the company.
One common use of unappropriated profit is to reinvest the extra funds into the core operation of the company in some manner. These reinvested earnings can take a number of different forms, from upgrading or replacing a piece of equipment to using the funds as seed money for a marketing campaign. The earnings may also be used to benefit the core operation in some other manner, such as paying for manager training courses that are outside the budget, or otherwise enhancing the skill sets of the work force of the company.
In other scenarios, a company may choose to use unappropriated profit to as a means of reducing any outstanding debts. When there is no immediate need for replacement of equipment or upgrading facilities, a company may choose to reduce debt load with these extra earnings. This action will help to improve the bottom line of the company, since less debt means more net profit over time. Shareholders are usually open to any actions that will help the company achieve a higher net profit.
Should the company not have any pressing needs for upgrades or to pay off debts, unappropriated profit can always be deposited in some sort of interest bearing account and allowed to accumulate over time. These accumulated earnings may eventually result in a substantial sum that will allow the company to undertake a large project that would not be feasible otherwise. Between the accumulated unappropriated profit and the interest income that is generated, the company may eventually be in a position to build additional plants or open new sales offices without the need to borrow resources to fund the projects.
