Retained Earnings

Forbes  Apr 4  Comment 
The cost of adopting international accounting standards is having a significant effect on the financial position of some Saudi companies  Aug 16  Comment 
PATRIZIA Immobilien AG: Announcement of a Capital Increase from Retained Earnings and Issuance of Bonus Shares DGAP-News: PATRIZIA Immobilien AG / Key word(s): Real Estate/Corporate Action PATRIZIA Immobilien AG: Announcement of a Capital...
Motley Fool  Apr 3  Comment 
Accounting rules can give you basic information about a company.
Motley Fool  Mar 27  Comment 
This accounting tactic properly deals with stock dividends.
Motley Fool  Mar 21  Comment 
The quick answer: It depends.
Motley Fool  Mar 20  Comment 
It's all about the dividends.
Motley Fool  Mar 18  Comment 
There are two main reasons why this accounting figure can rise.  Feb 25  Comment 
SARTORIUS AG: Sartorius plans to raise share capital by use of retained earnings / 4:1 'stock split' SARTORIUS AG / Key word(s): Miscellaneous/Miscellaneous 25.02.2016 12:06 Dissemination of an Ad hoc announcement according to ยง 15...
Motley Fool  Feb 14  Comment 
Understanding when a company can't make a dividend payment can be crucial at times of financial stress.
Motley Fool  Oct 10  Comment 
Here's how to use the income statement and balance sheet to find out how much a company paid out in dividends.


Retained Earnings is the portion of net income that the company does not distribute to its shareholders as dividends

Retained earnings appear on a company's balance sheet and are accumulated from one year to the next. When accumulated retained earnings is negative, it is called retained losses (also known as accumulated losses, or accumulated deficit). Retained earnings are calculated by adding net income and subtracting dividends from last year's retained earnings.

Ending retained earnings = Beginning retained earnings + net income - dividends

When looked at in conjunction with net income, retained earnings is used as an indicator of the company's priorities vis-a-vis paying its shareholders or bringing that money with it into its next fiscal period.

Fluctuations in retained earnings may be an indicator of a company's expectations for upcoming fiscal period: if a company's retained earnings increase dramatically one year or quarter, it may be indicative of a pessimistic outlook for the upcoming fiscal period. By contrast, if retained earnings decrease, the company is paying its shareholders a hefty dividend and is therefore likely optimistic about future earnings.


Suppose a company begins business on 20X1 and has net income of $50 million. It does not pay any dividends. Then its retained earnings for the year would be $50 million (0+50-0). In 20X2, the company earns $40 million and pays $10 million in dividends. Its retained earnings for the end of the year would be $80 million (50+40-10). In 20X3, the company makes a loss of $100 million and pays no dividends; at the end of 20X3, the company's accumulated deficit (since retained earnings is negative) would be $20 million (80-100).


The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added/subtracted from the account from period to period.

The general equation can be expressed as following:

Ending Retained Earnings = Beginning Retained Earnings - Dividends Paid + Net Income

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