Calculate Retained Earnings

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Retained Earnings Calculator

The balance from the end of the previous accounting period.
Total profit (positive) or loss (negative) for the current period.
Amount of profit distributed to shareholders during this period.

Results

Ending Retained Earnings: $0.00

function calculateRetainedEarnings() { var beginning = parseFloat(document.getElementById('beginningRE').value); var income = parseFloat(document.getElementById('netIncome').value); var div = parseFloat(document.getElementById('dividends').value); if (isNaN(beginning)) beginning = 0; if (isNaN(income)) income = 0; if (isNaN(div)) div = 0; var endingRE = beginning + income – div; document.getElementById('reResultValue').innerHTML = '$' + endingRE.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); var summaryText = "Your business started with $" + beginning.toLocaleString() + ". "; if (income >= 0) { summaryText += "After generating a net profit of $" + income.toLocaleString() + " "; } else { summaryText += "After sustaining a net loss of $" + Math.abs(income).toLocaleString() + " "; } summaryText += "and paying out $" + div.toLocaleString() + " in dividends, the company's accumulated wealth to be reinvested is $" + endingRE.toLocaleString() + "."; document.getElementById('reSummary').innerHTML = summaryText; document.getElementById('reResultWrapper').style.display = 'block'; }

Understanding Retained Earnings

Retained earnings represent the cumulative amount of net income a company has kept for internal use rather than distributing it to shareholders as dividends. These funds are typically reinvested back into the business for research and development, debt reduction, or purchasing new assets.

The Retained Earnings Formula

Calculating your ending retained earnings is a straightforward process used in the preparation of financial statements (specifically the Balance Sheet and the Statement of Retained Earnings). The formula is:

Ending Retained Earnings = Beginning Retained Earnings + Net Income (or – Net Loss) – Dividends Paid

Key Components Explained

  • Beginning Retained Earnings: This is the closing balance of retained earnings from the previous accounting period (usually found on last year's balance sheet).
  • Net Income/Loss: This is the "bottom line" from your current Income Statement. If the business made a profit, it increases retained earnings. If the business lost money, it decreases them.
  • Dividends: These are payments made to shareholders. Since this money is leaving the company, it must be subtracted from the total earnings.

Example Calculation

Imagine a small tech startup, "Alpha Solutions," has the following financials for the year 2023:

Description Amount
Retained Earnings (Jan 1st) $120,000
Net Income for 2023 $45,000
Dividends Distributed $10,000
Ending Retained Earnings $155,000

In this case: $120,000 (Start) + $45,000 (Income) – $10,000 (Dividends) = $155,000. This $155,000 will be the "Beginning Retained Earnings" for the 2024 fiscal year.

Why Do Retained Earnings Matter?

For investors and business owners, retained earnings are a vital indicator of a company's health. High retained earnings suggest a company is profitable and has the capital to grow without taking on excessive debt. However, it is also important to note that a "negative" retained earnings balance (often called an accumulated deficit) can happen if a company has had consistent losses that exceed its initial profits.

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