1. What Are Retained Profits?

Retained profits (or retained earnings) represent the portion of net income that is kept by the company rather than distributed to shareholders as dividends. These earnings are reinvested in the business or kept as reserves for future use.

2. How To Calculate Retained Profits

The formula for calculating retained profits is:

Where:

• \( \text{Profits} \) — The company's net income or profit for the period
• \( \text{Dividends} \) — The amount distributed to shareholders

Explanation: This simple calculation shows how much profit remains in the business after dividend payments.

3. Importance of Retained Profits

Details: Retained profits are crucial for business growth as they provide internal funding for expansion, research and development, debt reduction, or future dividend payments without needing external financing.

4. Using the Calculator

Tips: Enter your company's total profits and total dividends paid out. Both values must be positive numbers. The calculator will show the retained profits amount.

5. Frequently Asked Questions (FAQ)

Q1: Are retained profits the same as cash?
A: No, retained profits are an accounting concept. The actual cash may have been invested in assets or used to pay liabilities.

Q2: Can retained profits be negative?
A: Yes, if cumulative losses and dividends exceed profits, retained earnings become negative (called accumulated deficit).

Q3: How are retained profits shown on financial statements?
A: They appear in the equity section of the balance sheet and change through the income statement and dividend payments.

Q4: What's a good retained profits amount?
A: This varies by industry and company strategy. Growth companies typically retain more, while mature companies may pay higher dividends.

Q5: Can you pay dividends from retained profits?
A: Generally yes, but legal requirements vary by jurisdiction. Some require positive retained earnings to declare dividends.