What Are Retained Earnings
Retained earnings are cumulative net income a company keeps instead of paying as dividends. They represent profits reinvested in the business and are reported on the balance sheet as part of shareholders' equity.
How Retained Earnings Affect Net Worth
When calculating net worth, retained earnings increase equity because they are earnings the owners have not withdrawn. On a company balance sheet, they sit within common stock and additional paid-in capital, directly raising total equity and therefore net worth. For individuals, retained business profits count as part of business equity and personal assets.
Where Retained Earnings Appear in Financial Statements
Retained earnings appear in the equity section of the balance sheet and flow from the income statement each period. They grow when net income is positive and shrink when dividends are paid or losses occur. For deeper context on equity and retained earnings, see Investopedia.
