What Are Retained Earnings?
Retained earnings represent the cumulative profit a company has kept and reinvested in the business, rather than distributed to shareholders as dividends. It’s a running balance carried on the balance sheet.
The Formula
Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends Paid. If net income is negative (a net loss), it reduces retained earnings just like a dividend payment does.
- A rising retained earnings balance generally reflects sustained profitability and reinvestment.
- Retained earnings can still be negative (an “accumulated deficit”) if losses and dividends have outpaced profits over time.
For general financial planning and educational purposes; not a substitute for formal accounting records.
Last reviewed August 2026