Retained Earnings

Retained earnings is calculated by adding net income to (or subtracting any net losses from) the beginning retained earnings and then subtracting the dividends that were paid to shareholders:

Retained Earnings (RE) = Beginning RE + Net Income – Dividends

This equation is also known as the “retention ratio” or “retained surplus”.

Companies retain their earnings to invest  in projects or plant improvements that will help the company grow.  Examples of these type of investments would be buying machinery or research and development.

If the net loss for the period is greater than the retained earnings at the beginning of the period, retained earnings will be negative, creating a deficit.

Retained earnings is calculated by adding net income to (or subtracting any net losses from) the beginning retained earnings and then subtracting the dividends that were paid to shareholders:

Retained Earnings (RE) = Beginning RE + Net Income – Dividends

This equation is also known as the “retention ratio” or “retained surplus”.

Companies retain their earnings to invest  in projects or plant improvements that will help the company grow.  Examples of these type of investments would be buying machinery or research and development.

If the net loss for the period is greater than the retained earnings at the beginning of the period, retained earnings will be negative, creating a deficit.

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