Retained Earnings

Retained Earnings (Definition)

Retained earnings are the portion of a companys profit that is held or retained from the net income at the end of a reporting period and saved for future use as shareholders equity.

Key aspects of retained earnings include:

1. Represents the accumulated profits of a company that have not been distributed to shareholders
2. Increases with profitable years and decreases with losses or dividend payments
3. Reported on the balance sheet under shareholders equity
4. Can be used for reinvestment in the business, debt reduction, or future dividend payments
5. Important indicator of a companys long-term financial health
6. Affected by accounting adjustments and changes in accounting policies
7. Understanding retained earnings is crucial for assessing a companys dividend policy and growth potential

Proper management of retained earnings is essential for balancing shareholder returns with long-term business growth.