Retained earnings are the portion of a company's net income that is kept rather than paid out as dividends. The line is part of Shareholder's Equity.

In theory, this should be equal to net earnings less dividends paid for the entire lifetime of the company. However, as a practical matter, accountants generally back into this number as Total Assets less Total Liabilities and other Shareholder's Equity items.

In general, a positive Retained Earnings is normal, as a company reinvests in its own operations and projects. Nonetheless, negative Retained Earnings is not unusual, so users should assume that this item can be below zero when designing models. Companies with negative Retained Earnings fall into two categories: Either they're young and are still paying off initial investment, or they've had a number of bad years, possibly including a decrease in the value of assets.


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