Retained earnings are the amount of profit remaining after a company has paid all costs, income taxes, and dividends.
For example, a corporation earns $250,000 in net profit in the fiscal year, pays $60,000 in dividends to shareholders, and retains the remaining $190,000 as retained earnings — which accumulate on the balance sheet year over year and represent the cumulative undistributed profits of the business.
Why it matters: They form the war chest of the business; reinvesting retained earnings is the cheapest way to fund long-term exponential growth.
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