Retained Earnings

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Summary

What are Retained Earnings? Meaning.

Retained Earnings are accumulated profits that are not paid out as dividends to the shareholders. They are kept to accumulate as working capital. They may or may not be reinvested in the business. On the balance sheet they are accounted for as Ownership Equity.


A firm may decide to retain profits for basically two reasons:

  1. It believes it has good investment opportunities (offering better returns than the market).

  2. There are tax benefits to be expected from postponing dividend payout.

Also called Earned Surplus or Undistributed Profits.


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🔥 NEW How to Prepare a Statement of Retained Earnings?
Retained earnings are an important source of capital for businesses and can be used to finance a variety of investments and operations. They are typically reported as a separate line item on the balan...
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Hi, do you know of a remarkable, humorous quote by a famous person or a proverb related to retained earnings?Please enter a reaction to share it for other people to enjoy! Please use this template:Aut...
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Compare with: Dividend Payout Ratio  |  Unissued Stock

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