Retained Earnings Calculator
Enter earnings and the dividend payout ratio to see the dividends paid and the earnings retained. Add opening retained earnings to get the ending balance.
Updated
Retained Earnings Calculator
Our Retained Earnings Calculator splits a company's earnings into the part paid to shareholders as dividends and the part kept in the business. Type the net income for the period and the dividend payout ratio. It returns the retained earnings, the dividends paid and the retention ratio. Add the opening retained earnings balance to get the ending balance that goes on the balance sheet. It is built for accounting students, business owners planning dividends and investors reading financial statements.
Quick answer
Retained earnings for a period are net income − dividends, and the balance-sheet figure is opening retained earnings + net income − dividends. With earnings of 1,250,000 and a 40% payout, 1,250,000 − 500,000 = 750,000 is retained.
- Dividends: earnings × payout ratio.
- Retention ratio: 100% − payout ratio.
- Ending balance: opening + retained this period.
- Negative balance: an accumulated deficit.
What Are Retained Earnings?
Retained earnings are the profits a company has kept instead of paying them out as dividends. Each period, net income is added to the balance and dividends are taken away, so the figure builds up over the life of the business. It is reported in the shareholders' equity section of the balance sheet.
The amount kept is the company's main source of internal funding. It pays for new equipment, research, hiring and debt repayment without new borrowing or issuing more shares.
Retained Earnings Formula
Retained = NI − Dividends
Ending RE = Opening RE
+ NI − Dividends
- NI: net income (earnings) for the period.
- Payout %: the dividend payout ratio, the share of earnings paid as dividends.
- Opening RE: retained earnings at the start of the period, from the last balance sheet.
- Ending RE: retained earnings at the end of the period.
The first two lines give the amount retained this period. The last line rolls that amount into the running balance. If you already know the dividends in money terms, subtract them from net income directly.
How to Calculate Retained Earnings
A company earned 1,250,000 this year and pays out 40% as dividends. Its retained earnings were 2,000,000 at the start of the year:
= 500,000
Retained = 1,250,000 − 500,000
= 750,000
Ending RE = 2,000,000 + 750,000
= 2,750,000
- Work out the dividends. 1,250,000 × 40 ÷ 100 = 500,000.
- Subtract them from net income. 1,250,000 − 500,000 = 750,000 retained this year.
- Add the opening balance. 2,000,000 + 750,000 = 2,750,000 at the end of the year.
Payout Ratio and Retention Ratio
The dividend payout ratio and the retention ratio (also called the plowback ratio) always add up to 100%. A company that pays out 40% of earnings retains 60%.
| Payout | Retention | Typical of |
|---|---|---|
| 0% | 100% | Startups |
| 20% | 80% | Growth firms |
| 45% | 55% | Manufacturers |
| 70% | 30% | Utilities |
The last column is a rough guide, not a benchmark. Young companies with plenty of profitable projects usually keep most of their earnings. Mature companies with steady cash flow and fewer projects usually pay out more.
Retained Earnings Examples
Manufacturer. Earnings of 880,000 and a 45% payout:
Retained = 880,000 − 396,000
= 484,000
Technology company. Earnings of 500,000 and a 20% payout:
Retained = 400,000
It keeps 80% of its profit to spend on product development and expansion.
Utility. Earnings of 1,200,000 and a 70% payout:
Retained = 360,000
Most of the profit goes to shareholders as steady income, and a smaller part covers maintenance and modest growth.
Retained Earnings on the Balance Sheet
Retained earnings sit in shareholders' equity next to the money owners paid in for their shares:
| Equity item | Amount |
|---|---|
| Common stock | 300,000 |
| Retained earnings | 1,200,000 |
| Total equity | 1,500,000 |
Here 80% of equity comes from profits kept over the years rather than from money shareholders put in. Because the figure is cumulative, it does not reset at the start of each year. Each year's retained amount is added to the balance carried forward.
Negative Retained Earnings
Retained earnings turn negative when losses and dividends over the years add up to more than the profits. The negative balance is called an accumulated deficit. A company that starts the year at −200,000, earns 1,250,000 and pays 500,000 in dividends ends the year at 550,000:
− 500,000 = 550,000
Many start-ups show a deficit for years while they invest ahead of profits. Type a negative opening balance in the calculator to see how quickly profits clear it.
Retained Earnings Are Not Cash
A large retained earnings balance does not mean the company has that much cash. The profits have usually already been spent on machines, stock, buildings or debt repayment. A company can report 2,000,000 of retained earnings and hold far less in the bank. To see cash, look at the cash line on the balance sheet or the cash flow statement.
Common Mistakes
- Treating retained earnings as cash. They are a source of funding already used, not money in the bank.
- Forgetting the opening balance. The balance-sheet figure is cumulative. Earnings minus dividends is only this period's change.
- Typing the payout as a decimal. Enter 40 for 40%, not 0.4.
- Using revenue instead of net income. Dividends come out of profit after all expenses and taxes.
- Mixing up the two ratios. The payout ratio is the part paid out. The retention ratio is the part kept.
The result is for education and planning and is not accounting, tax or investment advice.
Key Terms
- Retained earnings
- Profits kept in the business instead of paid out as dividends.
- Net income
- Profit after all expenses, interest and taxes.
- Dividend payout ratio
- Dividends as a percentage of net income.
- Retention ratio
- 100% minus the payout ratio. Also called the plowback ratio.
- Accumulated deficit
- A negative retained earnings balance.
- Shareholders' equity
- Assets minus liabilities, including retained earnings.
How to Use the Retained Earnings Calculator
- Enter net income. Type the earnings for the period, such as 1,250,000.
- Enter the payout ratio. Type the percentage of earnings paid as dividends, such as 40.
- Add the opening balance if you need it. Optionally type retained earnings at the start of the period, such as 2,000,000. It can be negative.
- Read and copy the result. The retained earnings appear as you type, with the dividends paid, the retention ratio and, if you added an opening balance, the ending balance. Press Copy to copy it, or Clear or Esc to start again.
Example: earnings of 880,000 with a 45% payout give dividends of 396,000 and retained earnings of 484,000. With an opening balance of 2,000,000 the ending balance is 2,484,000.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate retained earnings?
Subtract dividends from net income to get the amount retained for the period. For the balance-sheet figure, add that amount to the opening retained earnings: ending RE = opening RE + net income − dividends.
What is the retained earnings formula?
Ending retained earnings = opening retained earnings + net income − dividends. With a payout ratio, dividends = net income × payout ratio ÷ 100.
What are the retained earnings on 1,250,000 of earnings with a 40% payout?
Dividends are 1,250,000 × 40% = 500,000, so 1,250,000 − 500,000 = 750,000 is retained. With opening retained earnings of 2,000,000, the ending balance is 2,750,000.
What is the retention ratio?
It is the share of earnings a company keeps: 100% minus the dividend payout ratio. A 40% payout means a 60% retention ratio.
Are retained earnings the same as cash?
No. Retained earnings are profits kept over time, and they have usually been spent on assets or debt repayment. A company can have large retained earnings and little cash.
Can retained earnings be negative?
Yes. When losses and dividends add up to more than past profits, the balance turns negative. This is called an accumulated deficit.
Do retained earnings reset every year?
No. They are cumulative. Each year's net income minus dividends is added to the balance carried forward from the year before.
Why do some profitable companies pay no dividends?
Growing companies often keep all their earnings to fund expansion, research or acquisitions, aiming to raise the value of the shares instead of paying income now.
Is the Retained Earnings Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- AccountingTools. Retained earnings formula definition.
- Corporate Finance Institute. What are Retained Earnings? Guide, Formula, and Examples.
- Corporate Finance Institute. Dividend Payout Ratio.
- Wall Street Prep. Retained Earnings.
- Wikipedia. Retained earnings.
- Wikipedia. Dividend payout ratio.
Try our Retained Earnings Calculator to see how much of your profit stays in the business.