retained earnings: meaning, definition, pronunciation and examples
C1Formal, Technical, Business
Quick answer
What does “retained earnings” mean?
The portion of a company's net income that is kept within the business rather than paid out to shareholders as dividends.
Audio
Pronunciation
Definition
Meaning and Definition
The portion of a company's net income that is kept within the business rather than paid out to shareholders as dividends.
A cumulative account on a company's balance sheet representing the total profits reinvested in the business over its lifetime, after accounting for dividends and any losses. It is a key component of shareholders' equity and a primary source of internal financing for growth and operations.
Dialectal Variation
British vs American Usage
Differences
No significant lexical or conceptual differences. Spelling follows regional conventions (e.g., 'retained' vs. 'retained' is the same). The term is standard in both accounting frameworks (UK GAAP/IFRS and US GAAP).
Connotations
Identical technical and financial connotations in both varieties.
Frequency
Equally high frequency in professional business and finance contexts in both regions.
Grammar
How to Use “retained earnings” in a Sentence
[Company/It] retained earnings of [amount][Retained earnings] are [verb, e.g., used, allocated, appropriated] for [purpose]The [noun, e.g., balance, level] of retained earningsVocabulary
Collocations
Examples
Examples of “retained earnings” in a Sentence
verb
British English
- The company retains a significant portion of its earnings each year.
- They have historically retained over 60% of post-tax profits.
American English
- The firm retains most of its earnings for reinvestment.
- Management decided to retain all earnings this quarter to strengthen the balance sheet.
adverb
British English
- Profits were retained consistently over the decade.
- The funds are retained permanently within the business structure.
American English
- Earnings are retained primarily for capital expenditures.
- Income was retained voluntarily to avoid external financing.
adjective
British English
- The retained earnings figure is disclosed in the annual report.
- A retained earnings reserve was created for future contingencies.
American English
- The retained earnings account showed strong growth.
- They analyzed the retained earnings balance over a ten-year period.
Usage
Meaning in Context
Business
The board decided to use the substantial retained earnings to fund the new factory expansion without taking on debt.
Academic
The study examined the correlation between high levels of retained earnings and long-term corporate investment in R&D.
Everyday
Rarely used in everyday conversation. Might be paraphrased as 'money the company saved from its profits to reinvest.'
Technical
As per the balance sheet, shareholders' equity comprises issued share capital, share premium, and retained earnings of £12.4m.
Vocabulary
Synonyms of “retained earnings”
Strong
Neutral
Weak
Vocabulary
Antonyms of “retained earnings”
Watch out
Common Mistakes When Using “retained earnings”
- Using it as a singular noun (e.g., 'a retained earning' – incorrect).
- Confusing it with 'revenue' or 'cash'. Retained earnings is an accounting concept, not necessarily cash on hand.
- Misspelling as 'retained earning' without the 's'.
FAQ
Frequently Asked Questions
No. Retained earnings are an accounting concept representing cumulative profits not distributed. The cash from those profits may have already been spent on assets, inventory, or other investments. A company can have high retained earnings but low cash.
Yes. Negative retained earnings, often called an 'accumulated deficit', occur when a company's cumulative losses and dividends exceed its cumulative net income. It indicates the company has consumed more capital than it has generated.
Retained earnings are listed in the shareholders' equity section of the balance sheet. Changes in retained earnings during a period are detailed in the 'Statement of Changes in Equity' or a separate 'Statement of Retained Earnings'.
The company's board of directors has the authority to decide whether to distribute profits as dividends or retain them. The use of retained earnings is typically proposed by management and approved by the board as part of strategic financial planning.
The portion of a company's net income that is kept within the business rather than paid out to shareholders as dividends.
Retained earnings is usually formal, technical, business in register.
Retained earnings: in British English it is pronounced /rɪˌteɪnd ˈɜː.nɪŋz/, and in American English it is pronounced /rɪˌteɪnd ˈɝ.nɪŋz/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “Ploughing profits back into the business (conceptual idiom related to the action)”
Learning
Memory Aids
Mnemonic
Think of a company 'retaining' (keeping) its 'earnings' (profits) in its own pocket instead of giving them all away. It's the company's savings account built from past profits.
Conceptual Metaphor
CORPORATE SAVINGS (A company is like a person saving money for future needs or projects). FUEL FOR GROWTH (Retained earnings are the internal fuel that powers a company's expansion engine).
Practice
Quiz
What is the primary purpose of retained earnings for a company?