Retained Earnings

Retained Earnings refers to the portion of a company’s Net Income that is kept in the business rather than distributed to Shareholders as dividends. It is an important measure of a company’s profitability and financial health, reflecting the cumulative earnings retained over time. Retained earnings can be used for rEINvestment in the business, paying down debt, or saving for future use.

Example: If a company has a Net Income of $100,000 in a given year and decides to pay out $40,000 in dividends, the retained earnings for that year would be $60,000. If the company’s retained earnings from previous years were $200,000, the total retained earnings would be $260,000.

Case: A technology startup may choose to retain all its earnings to fund research and development for new products, believing that reInvesting profits will yield higher Returns in the future. Conversely, a mature company in a stable industry might distribute a significant portion of its profits as dividends to Shareholders, resulting in lower retained earnings.