function calculateRetainedEarnings() {
var beginningREInput = document.getElementById('beginningRE').value;
var netIncomeInput = document.getElementById('netIncome').value;
var cashDividendsInput = document.getElementById('cashDividends').value;
var stockDividendsInput = document.getElementById('stockDividends').value;
// Convert inputs to numbers, default to 0 if empty
var beginningRE = beginningREInput === "" ? 0 : parseFloat(beginningREInput);
var netIncome = netIncomeInput === "" ? 0 : parseFloat(netIncomeInput);
var cashDividends = cashDividendsInput === "" ? 0 : parseFloat(cashDividendsInput);
var stockDividends = stockDividendsInput === "" ? 0 : parseFloat(stockDividendsInput);
// Validation to prevent NaN
if (isNaN(beginningRE) || isNaN(netIncome) || isNaN(cashDividends) || isNaN(stockDividends)) {
alert("Please enter valid numeric values for all fields.");
return;
}
// Calculation Logic: Beginning + Net Income – Dividends
var totalDividends = cashDividends + stockDividends;
var endingRE = beginningRE + netIncome – totalDividends;
// Formatting the result as currency
var formattedResult = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
}).format(endingRE);
// Displaying the result
var resultBox = document.getElementById('re-result-box');
var resultText = document.getElementById('re-final-result');
resultBox.style.display = 'block';
resultText.innerHTML = formattedResult;
// Change color for negative retained earnings
if (endingRE < 0) {
resultText.style.color = '#c0392b';
} else {
resultText.style.color = '#27ae60';
}
}
Understanding Retained Earnings
Retained earnings represent the cumulative amount of net income a company has kept (retained) rather than distributing to shareholders as dividends. It acts as a primary link between the income statement and the balance sheet, reflecting the historical profitability of a business minus its payouts to investors.
For small business owners and accountants, tracking retained earnings is crucial. It indicates the financial stability of the company and provides the capital necessary for reinvestment, debt repayment, or future expansion.
The Retained Earnings Formula
Calculating your ending retained earnings is a straightforward accounting process. The standard formula used by this calculator is:
Ending Retained Earnings = Beginning Retained Earnings + Net Income (or – Net Loss) – Dividends Paid
Breakdown of Inputs
Beginning Retained Earnings: This is the balance of retained earnings at the start of the accounting period (e.g., the start of the fiscal year or quarter).
Net Income: The total profit calculated on the income statement. If the company operated at a loss, this figure will be negative, reducing the retained earnings.
Dividends: This includes both cash dividends and stock dividends distributed to shareholders during the period. Dividends are always subtracted as they represent an outflow of equity.
Why Calculate Retained Earnings?
Calculating this metric accurately allows businesses to:
Assess Growth Potential: High positive retained earnings suggest the company has resources to fund new projects without taking on loans.
Evaluate Dividend Policy: It helps management decide if they can afford to increase dividend payouts or if they need to conserve cash.
Analyze Financial Health: Persistent negative retained earnings (an accumulated deficit) can be a warning sign of long-term financial trouble.
Example Calculation
Let's look at a practical example of how the Retained Earnings Calculator works:
Imagine Company ABC starts the year with $50,000 in retained earnings.
During the year, they generate a Net Income of $12,000.
They pay out $2,000 in cash dividends to shareholders.