RETAINED EARNING Meaning and
Definition
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Retained earnings refer to the portion of a company's net income that is retained, or kept, within the company instead of being distributed to shareholders as dividends. It represents the accumulated profits that a company has earned and saved over time. Retained earnings are a form of equity and are considered a key component of the company's overall shareholders' equity.
When a company makes a profit, it has several options for utilizing that profit. One option is to distribute it as dividends to shareholders, providing them with a return on their investment. However, another option is to retain the earnings and reinvest them back into the company for various purposes, such as expanding operations, investing in research and development, paying off debts, or acquiring new assets.
Retained earnings are vital as they provide a source of internal funding for the company's growth and development. They can be seen as an indication of the company's financial strength and profitability over time. Additionally, retained earnings contribute to the company's overall value and can help enhance its creditworthiness.
The amount of retained earnings increases each year if the company continues to make a profit and chooses to retain a portion of it. Conversely, if the company experiences a loss, the retained earnings may decrease or even become negative, resulting in what is called an accumulated deficit.
Common Misspellings for RETAINED EARNING
- eetained earning
- detained earning
- fetained earning
- tetained earning
- 5etained earning
- 4etained earning
- rwtained earning
- rstained earning
- rdtained earning
- rrtained earning
- r4tained earning
- r3tained earning
- rerained earning
- refained earning
- regained earning
- reyained earning
- re6ained earning
- re5ained earning
- retzined earning
- retsined earning
Etymology of RETAINED EARNING
The word "retained earnings" is composed of two terms: "retained" and "earnings".
- "Retained" is the past participle of the verb "retain", which comes from the Old French word "retenir" meaning "to hold back" or "to keep". It ultimately derives from the Latin word "retinere", which has the same meaning.
- "Earnings" is the plural form of the noun "earning", which comes from the Old English word "earnung", meaning "a gaining, acquisition, or income".
Therefore, "retained earnings" refers to the portion of a company's net profit that is kept or held back after dividends are paid out to shareholders. It represents the accumulated earnings that have not been distributed as dividends and are retained by the company for reinvestment or other purposes.
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