Definition Retained Earnings. Description.
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:
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It believes it has good investment opportunities (offering
better returns than the market).
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There are tax benefits to be expected from postponing dividend
payout.
Also called Earned Surplus or Undistributed Profits.
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Compare with:
Dividend Payout Ratio |
Unissued Stock
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