What Is Retained Earnings?

Retained Earnings (RE) are defined as the cumulative net earnings or profits of any company after settling dividend payments. The word retained means that those earnings did not go to shareholders as dividends; rather, they were retained by the company.

These funds are mostly used to work capital, make fixed asset purchases, or pay off debt. In some cases, retained earnings decrease when a company runs into a loss or pays dividends and increase when new profits are created.

Retained Earnings are usually reported on the balance sheet under the shareholder’s equity section at the end of each accounting period. To calculate RE, the beginning RE balance will be added to the net income or deducted by a net loss, and then dividend payouts are subtracted. 

How to Calculate Retained Earnings

The formula for calculating Retained Earnings (RE) is RE=BP+Net Income (or Loss)−C−S

where:

BP=Beginning Period RE

C=Cash dividends

S=Stock dividends

What Are Retained Earnings?

The retained earnings of a company are the total net income of the corporation that the corporation retains at a particular point in time, the same as the reporting period. 

The Retained Earnings (RE) of any company represent a useful link between the balance sheet and the income statement as they are recorded underneath shareholder equity, which connects the two statements. 

The motive for having these earnings retained comes from different reasons, which include spending on research and development, buying new equipment and machines, or other activities that will lead to the growth of the company.

If a company doesn’t have vital needs at the moment, it distributes these earnings to shareholders as dividends or conducts share buybacks.

How to Find Retained Earnings

Retained earnings are calculated when the net income of a company is added to the previous term’s retained earnings, and then it's subtracted from any dividend(s) that are paid to shareholders. The figure is mostly calculated at the end of each accounting period (monthly/quarterly/annually).

What Do Retained Mean?

Retained means to keep something for a specific purpose. In accounting and balancing sheets for a company, retained earnings (RE) are the accumulated portion of a business’s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business. 

To calculate Retained Earnings (RE),

RE = Beginning Period RE + Net Income/Loss – Cash Dividends – Stock Dividends

Where RE = Retained Earnings