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Balance from prior period's balance sheet
Enter beginning retained earnings
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Enter negative value for net loss
Enter net income or loss
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Total dividends distributed to shareholders
Enter dividends (0 or more)
Ending Retained Earnings
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What Are Retained Earnings?
Retained earnings are the cumulative net profits a company has kept (retained) rather than distributed to shareholders as dividends. They appear on the balance sheet under shareholders' equity and represent the company's reinvested profits over its lifetime.
The Retained Earnings Formula
Ending RE = Beginning RE + Net Income − Dividends Paid
Beginning RE: prior period ending balance. Net Income: from the income statement (negative if net loss). Dividends: cash dividends paid to shareholders during the period.
Key Ratios Derived from Retained Earnings
| Ratio | Formula | What It Tells You |
|---|---|---|
| Retention Ratio | (Net Income − Dividends) ÷ Net Income | % of profit kept for reinvestment |
| Payout Ratio | Dividends ÷ Net Income | % of profit paid to shareholders |
| Plowback Ratio | 1 − Payout Ratio | Same as retention ratio |
💡 Negative retained earnings (called an "accumulated deficit") can occur when cumulative losses exceed cumulative profits. This is common in early-stage startups and is not necessarily a crisis if the company has strong revenue growth.
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Frequently Asked Questions
Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends Paid. This formula is used on the statement of retained earnings, which reconciles the opening and closing balance.
Retained earnings appear on the balance sheet under shareholders' equity. They are also summarised in the statement of retained earnings (or statement of changes in equity).
Yes. Negative retained earnings — called an accumulated deficit — occur when cumulative losses exceed cumulative profits. Common in startups and growth-stage companies that reinvest heavily.
Growth companies typically retain 60–100% of earnings to fund expansion. Mature companies often have a 40–60% retention ratio, paying the rest as dividends. There is no single 'ideal' ratio.
No. Retained earnings are an accounting measure of cumulative profits kept in the business. The actual cash may have been reinvested in assets, used to pay debt, or spent on operations. A company can have high retained earnings but low cash.
Yes — called an "accumulated deficit," meaning cumulative losses exceed cumulative profits since founding. Common in early-stage companies investing in growth before profitability. Amazon had an accumulated deficit for years while growing rapidly. It's reported as a negative in the stockholders' equity section. A large deficit can signal financial distress, but context matters — growth trajectory and cash flow are equally important.
Buybacks are recorded as treasury stock and reduce total stockholders' equity, but don't directly reduce retained earnings. However, if a company repurchases shares above the original issue price, the excess reduces additional paid-in capital (APIC) first, then retained earnings if APIC is exhausted. Large buyback programs can result in negative total equity even when retained earnings are positive.