Retained earnings are the accumulated earnings or profits of a company after the payment of dividends to shareholders. The earnings are called retained earnings because they have been retained by the company instead of paying them out to the owners or shareholders.

Retained earnings may be retained indefinitely or may be used to payout future dividends.

From an accounting standpoint, retained earnings increase when the company earns a profit and decrease when dividends are paid to shareholders or losses take place. The decision whether to pay dividends or to retain earnings is made by the board of directors of a corporation, or sometimes by the senior management of the company. Retained earnings may also be used for acquisitions, mergers, or to repay company debt.

Dividends may be cumulative or non-cumulative. Cumulative dividends accumulate over time if they are not paid out when due. They are generally paid on preferred stock, but not all preferred stock has this right. Cumulative dividends must be paid, even if they are paid at a later date. Cumulative dividends must be paid in full before any dividends can be paid to owners of common stock.

Dividends

Plowback or Plowback Ratio