Retained earnings are the profits a company has earned over its life and chosen not to pay out as dividends. They sit inside equity and fund growth, debt reduction or reserves. Large retained earnings do not automatically mean large cash piles, because the money may already be tied up in assets.
Key takeaways
- Retained earnings grow when profits stay in the firm instead of being paid out.
- They are an equity account, not a cash account.
- Consistent retention can support expansion without new share issues.
- Investors still want evidence that retained profits are earning a good return.