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Profit a company has left over after all expenses are paid and shareholders receive their portion, and reserved for future use.[sc:kit03 ]
Explanation of Retained Earnings
Also called earnings retained, the Retained Earnings value is listed on the Balance Sheet, and is the remaining portion of earnings generated by the company minus cash or dividend distributions to shareholders. The Retained Earnings held by the company are often reinvested into the company or sometimes placed in other investments, but are not usually used to pay any day-to-day Operating Expenses.
Importance of Retained Earnings
A company needs to spend money to make money, and should always be generating, retaining, and reinvesting earnings. Without diligent reinvestment of earnings, a company will not easily be able to improve its operations.
Retained Earnings should be watched over time, with research to discover why the earnings were retained, what they are to be used for, and what improvements were eventually made and how management expects these improvements to benefit the company.