Quick Definition

Retained earnings refer to the portion of net income left over for a business after it has paid out dividends to its shareholders. These earnings are reinvested into the business or held as a reserve for future use.

Formula

Examples

• 1A company earns $1 million in profit and pays out $200,000 in dividends. The remaining $800,000 is recorded as retained earnings.
• 2A business uses its retained earnings of $500,000 to purchase new manufacturing equipment, enhancing production capacity.
• 3During a fiscal year, a corporation decides to retain all of its $300,000 profit to bolster its cash reserves against future economic downturns.
• 4A startup retains its initial profits to fund research and development, aiming to innovate and expand its product line.

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