Retained Earnings to Stockholders Equity Definition

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Quick Definition

Calculates how aggressively a company is retaining earnings compared to total stockholders equity.

Explanation of Retained Earnings to Stockholders Equity

The Retained Earnings to Stockholder’s Equity ratio measures how much Retained Earnings the company is keeping within the company compared to the total equity.

Importance of Retained Earnings to Stockholders Equity

An excessively low, or decreasing Retained Earnings to Stockholder’s Equity ratio is generally negative, possibly indicating the company is paying out increasingly more earnings to stockholders instead of reinvesting the money in the company. This ratio will need to be compared to industry averages, as an excessively high ratio may be negative as well, meaning the company may be retaining more earnings than it needs.