Retained earnings are the portion of a company’s earnings retained instead of paid to shareholders.
A company can use retained earnings to fund operations, purchase equipment, develop products, repay debt, or acquire another business. The balance accumulates over time from net income, less dividends and certain adjustments. It is reported within shareholders’ equity on the balance sheet.
Retained earnings are not the same as cash sitting in a bank account. A profitable company may reinvest its earnings in assets or have them tied up in receivables and inventory. Conversely, a company can have cash while showing accumulated deficits from earlier losses. Retained earnings also differ from revenue, which is money earned from business activities before expenses. Investors examine retained earnings alongside cash flow, debt, and profitability to understand how a company has financed growth and used profits.