What is Retained Earnings? Definition or Meaning

Were you the type who saved up money in a piggy bank in the hope of buying bigger and better things? Or did you spend it all? If you were the former and were a company, you would probably be keen to make sure you have retained earnings. This figure is a percentage measure of the net company earnings, not paid out as dividends but reinvested in the company.

For example…

Harry’s food manufacturing business, Food 4 U has consistently been paying its shareholders dividends over the past few years. As it has grown in size, its expectations from customers and shareholders have grown as well. So much so that Harry decided that he would retain earnings of the past financial year to reinvest it back into the business to create a state-of-the-art manufacturing plant, hire new staff and promise to double the current output. The decision paid off, with the value of shares for Food 4 U increasing steadily as the plan takes effect and starts to produce great results.