Retained Earnings 

Retained Earnings represent the cumulative amount of a company’s net income that is kept within the business rather than distributed to shareholders as dividends. It’s essentially the profits that have been reinvested to fund operations, pay down debt, or support future growth initiatives. 

Formula: 

Retained Earnings = Beginning Retained Earnings + Net Income (or - Net Loss) - Dividends Paid    

This figure appears under the shareholders’ equity section on a company’s balance sheet and reflects the business’s ability to accumulate value over time. Positive retained earnings indicate that a company has a history of profitability and retained capital for reinvestment, while negative retained earnings (also called an accumulated deficit) suggest ongoing losses. 

Retained earnings are often used for: 

• Expanding operations. 

• Funding research and development. 

• Acquiring new assets. 

• Reducing liabilities. 

• Building financial reserves.