Investing term

What is Retained earnings?

Cumulative net income kept in the business, not paid out as dividends — sits in shareholders' equity.

Retained earnings are the cumulative profits a company has kept and reinvested rather than paid out as dividends, sitting in shareholders' equity on the balance sheet. They show how much of its history's profit the business has plowed back in. Whether that's good depends on the returns earned — reinvesting wisely builds value, hoarding cash unproductively destroys it.

For example

A growing company keeps its profits to fund expansion, building large retained earnings — fuel for growth, as long as that reinvestment pays off.

Retained earnings is taught hands-on in Stage 14 — Reading Financial Statements.

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Related terms

Accounts receivable (A/R)Money customers owe the company for goods or services already delivered but not yet paid.AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.
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