Definition
Retained earnings represent accumulated net income reinvested in the business rather than paid to shareholders. Growing retained earnings indicates profitability and reinvestment. Companies may use retained earnings for expansion, debt repayment, or share buybacks.
Formula
Retained Earnings = Prior RE + Net Income - Dividends
Example
Starting with $80M retained earnings, adding $20M net income and subtracting $5M dividends results in $95M retained earnings. This $15M increase funds growth internally.
FAQ
What is Retained Earnings?
Cumulative profits not distributed as dividends.
How do you calculate Retained Earnings?
A common formula for Retained Earnings is: Retained Earnings = Prior RE + Net Income - Dividends
Why is Retained Earnings important?
Retained Earnings helps investors evaluate financial statements and make more informed decisions.