Calculate the ending retained earnings for your balance sheet.
Ending Retained Earnings
$0.00
What is Retained Earnings?
Retained earnings represent the cumulative amount of net income that a business has saved or "retained" after paying out dividends to its shareholders. It acts as a link between the income statement and the balance sheet. Essentially, it is the portion of profit that the company decides to reinvest in the business for growth, debt repayment, or asset accumulation rather than distributing it to owners.
The Retained Earnings Formula
The calculation is straightforward but vital for accurate financial reporting. The standard formula used in this calculator is:
Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends
Breakdown of Variables:
Beginning Retained Earnings: The accumulated earnings from the end of the previous accounting period.
Net Income: The total profit (or loss) earned during the current period. A net loss decreases retained earnings.
Dividends: The total distribution of value to shareholders, which includes both Cash Dividends and Stock Dividends.
Example Calculation
Let's look at a realistic example for a small business, "TechStart Inc.":
TechStart Inc. reports $135,000 as Ending Retained Earnings on its balance sheet.
Why is this Metric Important?
Retained earnings tell investors a lot about a company's strategy. A high retention ratio often suggests the company is in a growth phase, using its profits to expand operations. Conversely, mature companies often pay out higher dividends, resulting in lower additions to retained earnings. Positive retained earnings indicate financial health, while negative retained earnings (often called an "accumulated deficit") indicate a history of losses.
Frequently Asked Questions
Can Retained Earnings be negative?
Yes. If a company has a net loss greater than its beginning retained earnings, the result will be negative. This is recorded as an accumulated deficit.
Do Retained Earnings equal cash?
No. Retained earnings is an equity account, not an asset. Just because a company has $1 million in retained earnings does not mean it has $1 million in cash in the bank; that money may have been spent on equipment, inventory, or paying down debt.
function calculateRetainedEarnings() {
// 1. Get DOM elements
var inputBeginning = document.getElementById('re_beginning');
var inputNetIncome = document.getElementById('re_net_income');
var inputCashDiv = document.getElementById('re_cash_dividends');
var inputStockDiv = document.getElementById('re_stock_dividends');
var resultBox = document.getElementById('re_result_box');
var finalResultDisplay = document.getElementById('re_final_result');
// 2. Parse values (default to 0 if empty)
var beginningRE = parseFloat(inputBeginning.value);
var netIncome = parseFloat(inputNetIncome.value);
var cashDiv = parseFloat(inputCashDiv.value);
var stockDiv = parseFloat(inputStockDiv.value);
// Validation: treat NaN as 0 for smooth UX, but ensure user inputs something
if (isNaN(beginningRE)) beginningRE = 0;
if (isNaN(netIncome)) netIncome = 0;
if (isNaN(cashDiv)) cashDiv = 0;
if (isNaN(stockDiv)) stockDiv = 0;
// 3. The Calculation Logic
// Formula: Beginning + Net Income – (Cash Dividends + Stock Dividends)
var totalDividends = cashDiv + stockDiv;
var endingRE = beginningRE + netIncome – totalDividends;
// 4. Formatting the output as Currency USD
var formattedResult = endingRE.toLocaleString('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2,
maximumFractionDigits: 2
});
// 5. Display Result
finalResultDisplay.innerHTML = formattedResult;
resultBox.style.display = 'block';
// Optional: Change color if negative
if (endingRE < 0) {
finalResultDisplay.style.color = '#e53e3e'; // Red for deficit
} else {
finalResultDisplay.style.color = '#2b6cb0'; // Blue for positive
}
}