Any company will invest finance for the sake of deriving a return which is useful for four main reasons:
1. To reward the shareholders or owners of the business for staking their money and by foregoing their current purchasing power for the sake of current and future return.
2. To reward creditors by paying them regular return in form of interest and repayment of their principal as and when it falls due.
3. To be able to retain part of their earnings for plough back purposes which facilitates not only the companies growth present and the future but also has the implication of increasing the size of the company in sales and in assets.
4. For the increase in share prices and thus the credibility of the company and its ability to raise further finance.
Such a return is necessary to keep the company’s operations moving smoothly and thus allow the above objective to be achieved.