Retained Earnings Calculator: Ending Balance, Retention Ratio and Projection
Find ending retained earnings from beginning RE, net income and dividends, solve for dividends paid or use a payout ratio, with retention ratio and projection.
How it works
Ending retained earnings = beginning RE (± prior-period adjustments) + net income (or − net loss) − cash dividends − stock dividends · Dividends = net income × payout ratio · Retention ratio = (net income − dividends) ÷ net income = 1 − payout ratio
Retained earnings are the profits a company has kept since it started, after paying dividends. They sit in shareholders’ equity on the balance sheet and roll forward each period: start with last period’s balance, add net income (or subtract a loss), and subtract the dividends declared. A negative balance is called an accumulated deficit. Retained earnings are not a pile of cash; the money has usually been spent on equipment, inventory or paying down debt. Use Ending balance to build the statement of retained earnings, From payout ratio when you know what share of profit is paid out, or Dividends paid to work backward from two balance sheets and an income statement. Under More options you can add stock dividends, prior-period adjustments, per-share figures and a projection of the balance at the same payout ratio. This calculator follows the accounting roll-forward; the dividend payout ratio and DRIP calculators look at dividends from the investor’s side instead. It does not handle treasury stock or other equity accounts, which are recorded outside retained earnings.
Worked example
A company starts the year with $250,000 of retained earnings, earns net income of $80,000 and declares $20,000 of cash dividends. Ending retained earnings = $250,000 + $80,000 − $20,000 = $310,000. It kept $60,000 of its profit, a 75.0% retention ratio (25.0% payout). With 50,000 shares, that is $1.20 retained and $0.40 paid per share. If net income grows 5% a year and the payout stays at 25%, the balance reaches about $658,115 after 5 years.
Sources: Corporate Finance Institute: Retained earnings guide (formula and worked example) · Omni Calculator: Retained earnings (payout ratio and per-share example)
Frequently asked questions
What is the retained earnings formula?
Ending retained earnings = beginning retained earnings + net income − dividends. A net loss is subtracted instead of added. For example, $77,232 + $5,297 − $3,797 = $78,732.
How do I find dividends paid from the balance sheet?
Rearrange the formula: dividends = beginning retained earnings + net income − ending retained earnings. Take the two retained earnings figures from consecutive balance sheets and net income from the income statement. Choose “Dividends paid” to do this.
Can retained earnings be negative?
Yes. If a company’s cumulative losses and dividends exceed its cumulative profits, the balance is negative and is reported as an accumulated deficit. This is common in young or loss-making companies.
Are retained earnings the same as cash?
No. Retained earnings are an equity figure showing how much profit has been kept in the business over time. The money has usually been reinvested in assets such as equipment or inventory, so a company can have large retained earnings and little cash.
What is the retention ratio?
The share of net income kept in the business: (net income − dividends) ÷ net income, or 1 − payout ratio. A company earning $1,000,000 with a 30% payout ratio retains $700,000, a 70% retention ratio.
Related calculators
For study and planning. Financial statements should follow the accounting standards that apply to your company; check with an accountant.