Retained Earnings Calculator
Use this tool to calculate a company's ending retained earnings for a period. This is based on the fundamental accounting formula:
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Paid
Enter the required values below to get the ending balance.
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Understanding Retained Earnings
What are Retained Earnings?
Retained earnings (RE) represent the cumulative net income of a company since its inception, minus the total amount of dividends paid out to shareholders. It is essentially the portion of profit kept by the company to reinvest in the business, pay down debt, or hold for future use, rather than being distributed as dividends.
The Retained Earnings Formula
The calculation for the change in retained earnings during a specific period is straightforward:
Beginning Retained Earnings + Net Income (or - Net Loss) - Dividends Paid = Ending Retained Earnings
This calculation links the income statement (Net Income) and the statement of changes in equity (or retained earnings) to the balance sheet (the Retained Earnings balance).
Components Explained:
- Beginning Retained Earnings: The balance of retained earnings at the start of the reporting period. This is the ending balance from the previous period.
- Net Income (or Loss): The profit earned (or loss incurred) by the company during the reporting period, as reported on the income statement. Net income increases retained earnings, while a net loss decreases it.
- Dividends Paid: Distributions made by the company to its shareholders, usually in cash. Dividends decrease retained earnings. This calculator assumes cash dividends, but stock dividends or other distributions also impact equity.
- Ending Retained Earnings: The calculated balance at the end of the reporting period. This is the figure that appears on the balance sheet under shareholders' equity.
Note: This basic formula does not account for prior period adjustments, which are rare corrections to previous periods' retained earnings balances.
Retained Earnings Calculation Examples
See how the formula works with different scenarios:
Example 1: Profitable Year with Dividends
Scenario: A company starts the year with $100,000 in retained earnings, earns $50,000 in net income, and pays $20,000 in dividends.
1. Known Values:
Beginning RE = $100,000
Net Income = $50,000
Dividends Paid = $20,000
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $100,000 + $50,000 - $20,000
4. Result: Ending RE = $130,000
Conclusion: The company's retained earnings increased by $30,000 ($50k income - $20k dividends) during the year, ending at $130,000.
Example 2: Year with Net Loss and No Dividends
Scenario: A company begins with $75,000 in retained earnings, experiences a net loss of $15,000, and pays no dividends.
1. Known Values:
Beginning RE = $75,000
Net Income (Loss) = -$15,000
Dividends Paid = $0
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $75,000 + (-$15,000) - $0
4. Result: Ending RE = $60,000
Conclusion: The net loss reduced the retained earnings balance to $60,000.
Example 3: Company Starting (Beginning RE = 0)
Scenario: A newly formed company has $0 beginning retained earnings, earns $25,000 net income in its first period, and pays $5,000 in dividends.
1. Known Values:
Beginning RE = $0
Net Income = $25,000
Dividends Paid = $5,000
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $0 + $25,000 - $5,000
4. Result: Ending RE = $20,000
Conclusion: The company ends its first period with $20,000 in retained earnings available for future use.
Example 4: Negative Beginning Retained Earnings
Scenario: A company starts with a deficit (negative retained earnings) of -$10,000, earns $30,000 net income, and pays $10,000 in dividends.
1. Known Values:
Beginning RE = -$10,000
Net Income = $30,000
Dividends Paid = $10,000
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = -$10,000 + $30,000 - $10,000
4. Result: Ending RE = $10,000
Conclusion: Despite starting with a deficit, the profitable period resulted in a positive ending retained earnings balance.
Example 5: Income Equals Dividends
Scenario: Beginning RE is $200,000, Net Income is $40,000, and Dividends Paid are $40,000.
1. Known Values:
Beginning RE = $200,000
Net Income = $40,000
Dividends Paid = $40,000
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $200,000 + $40,000 - $40,000
4. Result: Ending RE = $200,000
Conclusion: When net income equals dividends paid, the retained earnings balance remains unchanged.
Example 6: Net Loss Exceeds Beginning RE (Leads to Negative Ending RE)
Scenario: Beginning RE is $15,000, Net Loss is $30,000, and no dividends are paid.
1. Known Values:
Beginning RE = $15,000
Net Income (Loss) = -$30,000
Dividends Paid = $0
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $15,000 + (-$30,000) - $0
4. Result: Ending RE = -$15,000
Conclusion: A large net loss can result in a negative ending retained earnings balance, also known as a deficit.
Example 7: Zero Beginning RE, Net Loss, No Dividends
Scenario: A company starts with $0 RE, has a net loss of $5,000, and pays no dividends.
1. Known Values:
Beginning RE = $0
Net Income (Loss) = -$5,000
Dividends Paid = $0
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $0 + (-$5,000) - $0
4. Result: Ending RE = -$5,000
Conclusion: Starting at zero, a net loss directly leads to a deficit (negative retained earnings).
Example 8: Significant Dividends Reduce RE
Scenario: Beginning RE is $50,000, Net Income is $10,000, but the company pays large dividends of $30,000.
1. Known Values:
Beginning RE = $50,000
Net Income = $10,000
Dividends Paid = $30,000
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $50,000 + $10,000 - $30,000
4. Result: Ending RE = $30,000
Conclusion: Despite having net income, paying dividends in excess of the income for the period reduced the retained earnings balance.
Example 9: Year with Zero Activity
Scenario: Beginning RE is $150,000, Net Income is $0, and Dividends Paid are $0.
1. Known Values:
Beginning RE = $150,000
Net Income = $0
Dividends Paid = $0
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $150,000 + $0 - $0
4. Result: Ending RE = $150,000
Conclusion: If there is no income or loss and no dividends, retained earnings remain unchanged.
Example 10: Using Decimals
Scenario: Beginning RE is $12,550.75, Net Income is $3,125.30, and Dividends Paid are $800.50.
1. Known Values:
Beginning RE = $12,550.75
Net Income = $3,125.30
Dividends Paid = $800.50
2. Formula: Ending RE = Beginning RE + Net Income - Dividends Paid
3. Calculation: Ending RE = $12,550.75 + $3,125.30 - $800.50
4. Result: Ending RE = $14,875.55
Conclusion: The calculator handles decimal values for precise calculations.
Frequently Asked Questions about Retained Earnings
1. What is the basic formula for calculating Retained Earnings?
The basic formula is: Beginning Retained Earnings + Net Income - Dividends Paid = Ending Retained Earnings.
2. Where do I find the "Beginning Retained Earnings" figure?
This figure comes from the balance sheet or the statement of retained earnings from the *immediately preceding* accounting period. It's the ending balance of the prior period.
3. Where do I find the "Net Income" figure?
Net Income (or Net Loss) comes directly from the company's income statement for the current accounting period.
4. Where do I find the "Dividends Paid" figure?
This figure represents the total dividends (cash or other assets) distributed to shareholders during the accounting period. This information is usually found in the statement of cash flows (financing activities section) or the statement of changes in equity.
5. Can Retained Earnings be a negative number?
Yes. If a company has accumulated losses that exceed its accumulated profits, or if it pays dividends that are greater than its cumulative profits, retained earnings will be negative. This is often called a "deficit".
6. What does a high Retained Earnings balance mean?
A high and growing retained earnings balance generally indicates a profitable company that is reinvesting a significant portion of its earnings back into the business rather than paying them out as dividends. This suggests potential for future growth.
7. How does Retained Earnings relate to the Balance Sheet?
Retained Earnings is a key component of the Shareholders' Equity section on the balance sheet. The ending retained earnings balance calculated by the formula is the figure that appears on the balance sheet at the end of the period.
8. Are there other things that affect Retained Earnings besides Net Income and Dividends?
Yes, primarily "Prior Period Adjustments". These are corrections of errors from previous periods that directly adjust the beginning retained earnings balance. However, this simple calculator uses the basic formula and does not include these adjustments.
9. Why might a profitable company have a low or negative Retained Earnings?
This could happen if the company pays out very large dividends relative to its income, or if it had significant accumulated losses from prior periods that haven't been fully offset by current profits.
10. Is Retained Earnings the same as cash?
No, absolutely not. Retained Earnings is an accounting figure representing the *source* of some of the company's assets (from past profits not paid out). The actual cash is recorded in the cash account on the assets side of the balance sheet. Those retained profits may have been used to purchase inventory, equipment, or other assets, not necessarily held as cash.
