Vareto Finance Glossary

Retained Earnings

Description

Retained earnings are the portion of a company’s net earnings that isn’t distributed as dividends to shareholders. These can be used by the company to achieve further growth, expand its activities, buy new furniture, and equipment, or even hire additional resources.

Example

Retained earnings can be calculated as Beginning Period retained earnings + Net Income/Loss – Cash Dividends – Stock Dividends

Why it matters

Retaining earnings can help companies improve their future earnings. These are cheap sources of funds since there is no interest outflow. Since retained earnings are easily accessible, companies can enjoy flexibility and speed of use. There are also no conditions around spending these funds.

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