Retained Earnings Calculator
Calculate retained earnings and analyze how profits are reinvested in the business. This calculator helps assess shareholder equity growth and dividend payout policies.
Beginning Balance & Net Income
Dividends
Retained Earnings Results
Ending Retained Earnings:
$0.00
Retained Earnings Change:
$0.00
Retention Rate:
0.00%
Dividend Analysis
Dividend Payout:
$0.00
Dividend Yield:
0.00%
Payout Policy:
N/A
Business Insights
Growth Strategy:
N/A
Shareholder Value:
Financial Health:
N/A
Understanding Retained Earnings
Retained earnings represent the cumulative amount of net income that a company has kept and reinvested in its operations rather than distributing to shareholders as dividends. They are a key component of shareholder equity and reflect the company's ability to generate and retain profits.
What are Retained Earnings?
Definition
- Cumulative net income minus dividends
- Reinvested profits in the business
- Key component of shareholder equity
- Internal financing source
Formula
- Ending RE = Beginning RE + Net Income - Dividends
- Retention Rate = (Net Income - Dividends) ÷ Net Income
- Payout Ratio = Dividends ÷ Net Income
- Accumulates over time
Components of Retained Earnings
Retained Earnings Statement
How retained earnings change
Beginning Balance:
- Retained earnings from prior period
- Starting point for calculation
- Historical accumulation
- Equity component
Net Income Addition:
- Current period profits
- Increases retained earnings
- After all expenses and taxes
- Bottom line profit
Dividend Subtraction:
- Distributions to shareholders
- Decreases retained earnings
- Cash or stock dividends
- Shareholder returns
Ending Balance:
- Final retained earnings
- Available for reinvestment
- Balance sheet equity
- Growth capital
Retention Rate vs Payout Ratio
Retention Rate:
- Percentage of profits retained
- Retention Rate = 1 - Payout Ratio
- Higher rate = More reinvestment
- Growth-oriented companies
Payout Ratio:
- Percentage of profits paid as dividends
- Payout Ratio = Dividends ÷ Net Income
- Higher ratio = More shareholder returns
- Mature, stable companies
Uses of Retained Earnings
| Use | Purpose | Benefits | Company Type |
|---|---|---|---|
| Capital Expenditures | Purchase fixed assets | Long-term growth | Growing companies |
| Working Capital | Fund operations | Operational stability | All companies |
| Debt Reduction | Pay down loans | Improved leverage | Mature companies |
| R&D Investment | Product development | Innovation | Tech companies |
| Acquisitions | Buy other companies | Market expansion | Large corporations |
Retained Earnings and Shareholder Value
Growth Companies:
- High retention rates
- Reinvest in expansion
- Capital appreciation
- Long-term value creation
Mature Companies:
- Higher payout ratios
- Return cash to shareholders
- Dividend income
- Stable returns
Retained Earnings in Financial Analysis
Balance Sheet:
- Equity component
- Book value of equity
- Shareholder ownership
- Financial stability
Cash Flow Statement:
- Financing activity
- Dividend payments
- Equity changes
- Cash management
Dividend Policy Considerations
Stable Dividend Policy:
- Consistent payouts
- Investor expectations
- Financial stability
- Mature companies
Residual Dividend Policy:
- Pay after investment needs
- Growth-oriented
- Variable payouts
- Young companies
Retained Earnings Limitations
Accounting Issues:
- Historical cost basis
- Accounting policy changes
- One-time items
- Earnings quality
Market Considerations:
- Market value vs book value
- Intangible assets
- Economic conditions
- Industry factors
Key Takeaways for Retained Earnings
- Retained earnings are the cumulative profits kept in the business rather than paid as dividends
- They represent reinvested profits that fund growth and operations
- Retention rate shows what percentage of profits are reinvested
- Payout ratio indicates what percentage goes to shareholders as dividends
- Growth companies typically have higher retention rates
- Mature companies often have higher payout ratios
- Retained earnings are a key component of shareholder equity
- They provide internal financing for business expansion and stability