retained earnings

pl.n.
The accumulated net income retained for reinvestment in a business, rather than being paid out in dividends to stockholders.

The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.

Calculated by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:



Also known as the "retention ratio" or "retained surplus".

Investopedia Says:
In most cases, companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development.

Should a net loss be greater than beginning retained earnings, retained earnings can become negative, creating a deficit.

Related Links:
A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information. Evaluating Retained Earnings: What Gets Kept Counts
Learn about the components of the statement of financial position and how they relate to each other. Reading The Balance Sheet
Discover the issues that complicate these payouts for investors. Dividend Facts You May Not Know

Net profits kept to accumulate in a business after dividends are paid. Also called undistributed profits or earned surplus. Retained earnings are distinguished from contributed capital-capital received in exchange for stock, which is reflected in Capital Stock or Capital Surplus and Donated Stock or Donated Surplus. Stock Dividends-the distribution of additional shares of capital stock with no cash payment-reduce retained earnings and increase capital stock. Retained earnings plus the total of all the capital accounts represent the Net Worth of a firm. See also Accumulated Profits Tax; Paid-in Capital.

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