Finance Calc Kit

What are retained earnings?

Retained earnings are the cumulative net profits a corporation keeps on the balance sheet after paying dividends to shareholders. They fund reinvestment, debt reduction, and future growth without raising new equity. Each period, ending retained earnings equal beginning retained earnings plus net income minus dividends paid.

To model dividend cash flows and reinvestment separately, use the dividend calculator. To connect net income to broader profitability metrics, see the net profit margin calculator.

Retained earnings roll-forward formula

RE_{\text{ending}} = RE_{\text{beginning}} + \text{Net Income} - \text{Dividends}

Period net retained equals net income minus dividends. The retention ratio divides period net retained by net income. The dividend payout ratio divides dividends by net income. The two ratios sum to 100% when net income is positive.

Worked example

Beginning retained earnings of $50,000 plus $20,000 net income minus $5,000 dividends produces $15,000 retained in the period and ending retained earnings of $65,000. The retention ratio is 75% and the dividend payout ratio is 25%.

Why retained earnings matter

Balance sheet equity: Retained earnings are a major component of shareholders' equity for profitable companies.
Reinvestment capacity: Higher retention leaves more internal capital for R&D, acquisitions, and working capital.
Dividend policy signal: Payout and retention ratios reveal how management balances shareholder cash returns with growth investment.

Frequently asked questions

Can ending retained earnings be negative?

Yes. Accumulated deficits from repeated net losses can create negative retained earnings (often called an accumulated deficit), though companies cannot pay dividends from a deficit balance in most jurisdictions.

Do stock buybacks affect retained earnings?

Cash buybacks reduce cash and equity but are not dividends. They do not enter the retained earnings roll-forward formula directly, though they reduce total shareholders equity.

What if net income is negative?

A net loss subtracts from beginning retained earnings just like a dividend. Retention and payout ratios are not meaningful when net income is zero or negative.

How is this different from revenue?

Revenue is top-line sales. Retained earnings accumulate only what remains after all expenses, taxes, and dividend distributions across prior periods.

Are my inputs stored?

No. All calculations run client-side in your browser.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.