How Do You Calculate Retained Earnings

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Retained Earnings Calculator

Calculate your company's accumulated profits after dividends

Balance from the end of the previous accounting period.
Total revenue minus total expenses. Use negative for a loss.
Total distributions paid out to shareholders.

Calculation Result

$0.00

How Do You Calculate Retained Earnings?

Retained earnings represent the cumulative amount of net income a company has kept for reinvestment rather than distributing it as dividends to shareholders. It is a critical metric found in the equity section of the balance sheet.

The Retained Earnings Formula

Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends Paid

Understanding the Components

  • Beginning Retained Earnings: This is the balance carried over from the end of the previous fiscal period.
  • Net Income: The total profit remaining after all operating expenses, interest, and taxes are paid. If the company loses money, this is a negative number (Net Loss).
  • Dividends: These are the cash or stock distributions made to shareholders during the current period.

Practical Example

Suppose your business starts the year with $100,000 in retained earnings. Over the course of the year, the business generates $40,000 in net income. The board of directors decides to pay out $10,000 in dividends to the owners.

The calculation would be:

$100,000 (Beginning) + $40,000 (Net Income) – $10,000 (Dividends) = $130,000.

Why are Retained Earnings Important?

Retained earnings are vital for growth. They allow a company to fund research and development, purchase new equipment, or pay off existing debt without seeking outside financing. High retained earnings often signal a healthy, mature company with strong historical profitability.

function calculateRE() { var beg = parseFloat(document.getElementById('beginningEarnings').value); var net = parseFloat(document.getElementById('netIncome').value); var div = parseFloat(document.getElementById('dividendsPaid').value); // Default to 0 if input is empty or NaN if (isNaN(beg)) beg = 0; if (isNaN(net)) net = 0; if (isNaN(div)) div = 0; var result = beg + net – div; // Formatting for display var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', }); var resultWrapper = document.getElementById('resultWrapper'); var reResult = document.getElementById('reResult'); var reBreakdown = document.getElementById('reBreakdown'); reResult.innerHTML = formatter.format(result); reBreakdown.innerHTML = "Based on a beginning balance of " + formatter.format(beg) + ", a net income of " + formatter.format(net) + ", and dividends of " + formatter.format(div) + "."; resultWrapper.style.display = 'block'; // Smooth scroll to result resultWrapper.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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