Final answer:
Retained earnings do not reduce a company's commitment to use its assets for stockholders; it is a way to reinvest in the company without incurring additional debt. Issuing bonds or borrowing requires interest payments, while issuing stock dilutes ownership and control.
Step-by-step explanation:
The statement that retained earnings reduces a company's commitment to use its assets for the benefit of its stockholders is false. Retained earnings are a portion of a company's profit that is held or retained and saved for future use, such as for investment in the business or to pay down debt. Companies have different ways to finance their activities; they can issue bonds, borrow from a bank, or issue stock.
When a company issues bonds or borrows money, it becomes obligated to make scheduled interest payments, which may strain the company's cash flow if it is not generating sufficient profits. However, by using retained earnings for reinvestment or paying down debt, the company can avoid such cash outflows. On the other hand, issuing stock can dilute control over the company since ownership is sold to the public, making the company responsible to a board of directors and its shareholders.
Venture capitalists are an alternative option for financing, as they provide capital and may take an active role in management, offering expertise and oversight to ensure the company is well-managed.