Statement of Retained Earnings

A statement of retained earnings is a financial statement that summarizes the changes in a company's retained earnings over a period of time. It shows how much money the company has earned after paying its expenses and taxes, and how much of that money it has chosen to keep in the business rather than paying out to shareholders as dividends.

The statement of retained earnings is one of the three main financial statements, along with the balance sheet and the income statement. It is typically presented after the income statement and before the statement of cash flows.

The statement of retained earnings begins with the beginning balance of retained earnings from the previous period. This is then increased by the net income from the current period, which is the amount of money left over after all expenses and taxes have been paid. Any dividends paid to shareholders are subtracted from retained earnings.

The ending balance of retained earnings is then carried forward to the balance sheet as part of the shareholders' equity section.

The statement of retained earnings provides investors with information about how a company is using its profits. It shows how much money the company is keeping in the business to fund future growth, and how much it is paying out to shareholders in the form of dividends.

The statement of retained earnings can also be used to calculate a company's return on equity (ROE). ROE is a measure of how effectively a company is using its shareholders' equity to generate profits. It is calculated by dividing net income by shareholders' equity.

A high ROE indicates that a company is generating a lot of profit from its shareholders' equity. This can be a sign of a well-managed company that is using its resources effectively.

A low ROE indicates that a company is not generating much profit from its shareholders' equity. This can be a sign of a poorly-managed company that is not using its resources effectively.

The statement of retained earnings is an important financial statement that provides investors with information about how a company is using its profits. It can be used to assess a company's financial health and to evaluate its prospects for future growth.