Calculate your company's retained earnings based on its net income and dividends paid.
Your Ending Retained Earnings will appear here.
Understanding Retained Earnings
Retained earnings represent the accumulated profits of a company that have not been distributed to shareholders as dividends. It's a crucial component of a company's equity on its balance sheet. Essentially, it shows how much of the company's earnings have been reinvested back into the business.
A positive retained earnings balance generally indicates that a company is profitable and has managed its earnings effectively. Conversely, a negative balance (often called a retained earnings deficit) might suggest the company has incurred losses or paid out more in dividends than it has earned.
How to Calculate Retained Earnings
The formula for calculating the ending retained earnings is straightforward. You start with the retained earnings from the beginning of the period, add the net income earned during the period, and then subtract any dividends paid to shareholders during that same period.
Formula:
Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends Paid
Key Components Explained:
Beginning Retained Earnings: This is the total retained earnings balance carried over from the end of the previous accounting period. It's found on the previous period's balance sheet.
Net Income: This is the company's profit after all expenses, taxes, and interest have been deducted. It is typically found on the company's income statement for the current period. If the company experienced a net loss, this value would be negative and would reduce retained earnings.
Dividends Paid: These are the portions of the company's profits that are distributed to shareholders in the form of cash or additional stock. Dividends reduce retained earnings as they represent profits that are being given back to owners rather than being reinvested.
Why is Retained Earnings Important?
Retained earnings are a vital source of financing for businesses. Companies can use these funds for various purposes, including:
Funding research and development (R&D)
Purchasing new assets (e.g., equipment, property)
Expanding operations
Paying down debt
Acquiring other companies
Buying back company stock
By reinvesting profits, companies can fuel growth and increase their overall value without needing to take on additional debt or issue more stock, which can dilute ownership. Investors and creditors often look at retained earnings as a sign of a company's financial health and its ability to generate profits and manage its growth internally.
This calculator provides a simple way to estimate your company's retained earnings. For accurate financial reporting, always refer to your official financial statements and consult with a qualified accountant.
function calculateRetainedEarnings() {
var beginningRetainedEarnings = parseFloat(document.getElementById("beginningRetainedEarnings").value);
var netIncome = parseFloat(document.getElementById("netIncome").value);
var dividendsPaid = parseFloat(document.getElementById("dividendsPaid").value);
var resultElement = document.getElementById("result");
// Input validation
if (isNaN(beginningRetainedEarnings) || isNaN(netIncome) || isNaN(dividendsPaid)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
resultElement.style.color = "#dc3545"; // Error color
return;
}
if (beginningRetainedEarnings < 0 || netIncome < 0 || dividendsPaid < 0) {
resultElement.innerHTML = "Values cannot be negative, except for Net Income if there's a loss.";
resultElement.style.color = "#dc3545"; // Error color
return;
}
var endingRetainedEarnings = beginningRetainedEarnings + netIncome – dividendsPaid;
resultElement.innerHTML = "Ending Retained Earnings: " + endingRetainedEarnings.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
resultElement.style.color = "#28a745"; // Success color
}