1. What is Retained Earnings?

Retained earnings represent the cumulative amount of net income a company has saved rather than distributed to shareholders as dividends. It's an important component of shareholders' equity on the balance sheet.

2. How Does the Calculator Work?

The calculator uses the retained earnings formula:

Where:

• Beginning RE — Retained earnings from the previous period
• Net Income — Current period's net profit or loss
• Dividends — Cash or stock dividends paid to shareholders

Explanation: The formula shows how retained earnings change from one period to the next based on profitability and dividend payments.

3. Importance of Retained Earnings

Details: Retained earnings indicate a company's capacity to reinvest in its operations, pay down debt, or distribute future dividends. It's a key indicator of financial health and growth potential.

4. Using the Calculator

Tips: Enter all values in dollars. Beginning retained earnings and dividends should be positive values. Net income can be positive (profit) or negative (loss).

5. Frequently Asked Questions (FAQ)

Q1: Can retained earnings be negative?
A: Yes, negative retained earnings (accumulated deficit) occur when cumulative net losses and dividends exceed cumulative profits.

Q2: How are retained earnings different from revenue?
A: Revenue is income from operations, while retained earnings represent accumulated profits after all expenses and dividends.

Q3: What's the difference between retained earnings and cash?
A: Retained earnings are an accounting concept, not necessarily cash. A company can have high retained earnings but low cash if profits were reinvested.

Q4: How often should retained earnings be calculated?
A: Typically calculated at the end of each accounting period (quarterly or annually) as part of financial statements.

Q5: Can a company pay dividends if it has negative retained earnings?
A: Generally no, as this would typically violate corporate laws protecting creditors, though exceptions exist in some jurisdictions.