Fundamental Glossary / Financial Statements
Retained Earnings
Cumulative profit that has not been paid out as dividends.
Formula
Opening retained earnings + profit - dividends - other appropriations = closing retained earnings.
What it means
Retained earnings are the history of what owners left in the business. They are a source of equity, not a cash account.
A long record of positive additions means the company has been profitable and has not distributed everything. Losses create an accumulated deficit, which is negative retained earnings.
How to read it
High retained earnings plus a high ROE means reinvestment has been worthwhile so far. High retained earnings plus a poor ROE means capital has piled up without earning enough.
What to watch
Dividends cannot be paid just because retained earnings are large if company law, loan covenants, or a lack of cash stand in the way. In India, dividends also have to respect the Companies Act tests.
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.