What are retained earnings?

Retained earnings refer to the cumulative net income that a company has kept or retained rather than distributed as dividends to its shareholders. This figure represents the profits that have been reinvested in the business over time to fund operations, growth, or other investments. By retaining earnings, a company can finance its projects without having to rely on additional external funding sources, such as loans or equity financing.

In contrast, dividends paid to shareholders represent the portion of earnings that is distributed, while total revenue generated in a fiscal year indicates the overall income earned before any expenses are deducted. The amounts received from equity investors typically relate to the funds invested in the company, rather than profits retained from operations. Therefore, the concept of retained earnings focuses specifically on the profits that have been reinvested into the business, making it a key indicator of a company's financial health and long-term strategy.