Retained earnings or retained earnings are those benefits that the company has earned and that instead of being distributed among the shareholders, they decide to invest in the company itself.
These earnings can be used to achieve further growth of the company, such as increasing the workforce, improving the budget dedicated to research or to obtain a liquidity fund that allows the company to remedy possible emergency situations in the future.
Sometimes they are very useful for the company, since they allow the company to finance itself with its own money, thus avoiding péstamos financial that can come to have a significant cost.
How Retained Earnings Are Calculated
To calculate retained earnings, you need to subtract expenses from income to get net earnings. Dividends distributed to shareholders (if they are distributed that year) must be deducted from net earnings. At situation balance these retained earnings are added to the equity of the company.