The Retained Earnings Calculator is a valuable financial tool used by businesses to determine the amount of earnings reinvested in the company rather than distributed as dividends to shareholders. This calculator assists in forecasting the financial health and growth potential of a company by providing insights into its retained earnings, which are essential for strategic decision-making and planning.
Formula of Retained Earnings Calculator
The calculation for Retained Earnings is straightforward and is represented by the following formula:
Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Terms Explained
- Beginning Retained Earnings: This refers to the balance of retained earnings from the previous accounting period. It serves as the starting point for the current period’s retained earnings calculation.
- Net Income: Net income, also known as the bottom line, is the company’s total revenue minus its expenses for the current accounting period. It represents the profitability of the business after all expenses have been deducted from revenue.
- Dividends: Dividends are the portion of a company’s profits that are distribute to shareholders as a return on their investment. These payments are typically periodically, either in cash or additional shares of stock.
Table of General Terms
| Term | Description |
|---|---|
| Retained Earnings | The portion of a company’s profits that are retained and reinvested into the business. |
| Net Income | The total revenue minus expenses, representing the profitability of the company. |
| Dividends | Payments made to shareholders as a distribution of profits. |
Example of Retained Earnings Calculator
Let’s consider a hypothetical scenario to illustrate the use of the Retained Earnings Calculator:
Suppose a company has a beginning retained earnings balance of $100,000. During the current period, it generates a net income of $50,000 and distributes $20,000 in dividends to shareholders.
Using the Retained Earnings Calculator, we can plug in these values:
Beginning Retained Earnings: $100,000 Net Income: $50,000 Dividends: $20,000
Substituting these values into the formula:
Retained Earnings = $100,000 + $50,000 – $20,000 = $130,000
Therefore, the company’s retained earnings for the current period amount to $130,000.
Most Common FAQs
Retained earnings reflect the portion of a company’s profits that are reinvest back into the business for growth opportunities, debt reduction, or future dividends. They play a crucial role in determining a company’s financial stability and ability to fund future operations.
Retained earnings represent the cumulative total of profits that have been retain in the business since its inception. Whereas net income is the profit generate by the company during a specific accounting period after deducting all expenses from total revenue.
Retained earnings signal a company’s ability to generate profits and sustain long-term growth. Investors often view increasing retained earnings positively as it indicates the company’s reinvestment in its own operations rather than distributing all profits to shareholders.