What are retained earnings?

Retained earnings refer to the portion of a company's profits that are reinvested in the business rather than distributed to shareholders as dividends. This concept reflects the accumulated net income that has been retained over time to fund growth initiatives, pay off debt, or enhance the company’s financial health. Retained earnings contribute to the overall equity of a company and can be used for various purposes such as expansion, research and development, and other operational investments.

In the context of corporate finance, retained earnings signify a company's reinvestment strategy and its ability to generate profits over time. This reinvestment can lead to increased future profitability, ultimately benefiting shareholders as the company grows.