Fundamental Glossary / Financial Statements
Reserves and Surplus
The part of equity that is not paid-up share capital: retained earnings and other reserves.
Formula
On an Indian balance sheet: securities premium, retained earnings, general reserve, and other reserves.
What it means
Reserves and surplus are profits and premiums accumulated over the life of the company, minus dividends and losses. They are the earned and contributed cushion beyond the face value of the shares.
Some reserves are free for dividend. Capital redemption reserves and some statutory reserves are not.
How to read it
A company that funds growth from reserves and surplus is financing itself. One that grows the asset base only by issuing shares or debt is asking outsiders to fund it.
What to watch
Do not treat every reserve as spendable cash. The reserve may already have been invested in fixed assets. Only the cash line tells you what can be paid out tomorrow.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.