[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.26.1″ header_2_font_size=”32px” custom_padding=”0px||0px||false|false” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n
Retained earnings are the portion of a company\u2019s net income that\u2019s kept within the business rather than distributed as dividends to shareholders. As they are earnings, they accumulate over time and can be used to fund everything from future operations to investments in growth opportunities, or to strengthen the company\u2019s financial position.<\/p>\n
You can calculate them by using a simple retained earnings formula:<\/p>\n
Retained earnings = Beginning balance + Net income (or – Net loss) – Dividends paid<\/em><\/p>\n Calculating retained earnings can help your business figure out its retained earnings balance at the end of each accounting period, whether that\u2019s quarterly or annually<\/a>. The retained earnings beginning balance is carried over from the year (or quarter) prior and is adjusted based on the company\u2019s financial performance.<\/p>\n Retained earnings should be listed on the company\u2019s balance sheet under shareholders’ equity. They should also be referenced in the retained earnings statement, which gives a breakdown of how retained earnings have changed over a specific period of time.<\/p>\n While retained earnings aren\u2019t recorded on the income statement, they are influenced by net income<\/a>. A business with positive retained earnings, for example, has generated profits, whereas negative retained earnings (or an accumulated deficit) are a marker of financial struggles \u2014 this could be due to ongoing net losses or unnecessarily large dividend payouts.<\/p>\n <\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/02\/Retained-earnings-strategy-3.png” alt=”Retained earnings benefits” title_text=”Retained Earnings Strategy 3″ _builder_version=”4.26.1″ _module_preset=”default” custom_margin=”-50px|-30px|||false|false” custom_padding=”0px|||||” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.26.1″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n Your company\u2019s retained earnings figure has a huge role to play in its overall financial health and stability for the future. Business decision-makers can use retained earnings to:<\/p>\n Companies will need to decide whether to use their retained earnings for reinvestment or distribute them as cash dividends or stock dividends. Paying dividends will obviously reduce retained earnings while holding onto those earnings will mean the company can finance growth internally.<\/p>\n Businesses planning to expand in the near future will often reinvest retained earnings, whereas mature companies regularly prioritise paying dividends to their shareholders.<\/p>\n A growing retained earnings balance shows there is strong financial performance and profitability within the company. Excessive retained earnings without reinvestment might suggest some level of stagnation, while a consistently negative retained earnings balance could be a warning light for financial distress.<\/p>\n Ultimately, while retained earnings give you some flexibility in your decision-making, they must be managed smartly in order to balance reinvestment, shareholder expectations and your long-term sustainability.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”Related terms” _builder_version=”4.26.1″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” locked=”off” global_colors_info=”{}”]<\/p>\n See related terms<\/strong> <\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Retained earnings are the portion of a company\u2019s net income that\u2019s kept within the business rather than distributed as dividends to shareholders. As they are earnings, they accumulate over time and can be used to fund everything from future operations to investments in growth opportunities, or to strengthen the company\u2019s financial position. How to calculate […]<\/p>\n","protected":false},"author":35,"featured_media":0,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-289710","glo","type-glo","status-publish","format-standard","hentry"],"yoast_head":"\nRetained earnings and financial statements<\/h2>\n
How retained earnings play into a company\u2019s financial health<\/h2>\n
\n
Retained earnings vs dividends<\/h2>\n
Interpreting retained earnings on the balance sheet<\/h2>\n
Retained earnings in terms of business owners and investors<\/h2>\n
\n
What is profit?<\/a>
What is net profit?<\/a>
What is gross profit?<\/a><\/p>\n