Roll retained earnings forward for a period: start from the beginning balance, add net income (or subtract a loss) and take off dividends. You also get the retention and payout ratios, a statement of retained earnings and an optional multi-year projection.
Last updated:
This period
$
Ending balance from the last balance sheet. Negative for a deficit.
$
From the income statement. Negative for a net loss.
$
$
Value transferred from retained earnings to paid-in capital.
$
Error corrections or accounting changes; negative to reduce.
%
Adds the sustainable growth rate.
Projection (optional)
0 hides the projection.
%
Enter your values to see the result.
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How to use the Retained Earnings Calculator
Enter beginning retained earnings from the previous balance sheet (negative for a deficit).
Enter net income for the period from the income statement, with a minus sign for a loss.
Enter dividends declared: cash dividends or owner distributions, and any stock dividends.
Optionally add prior-period adjustments, return on equity, and projection settings.
Read the ending balance and ratios, then download the statement or projection as CSV.
How retained earnings are calculated
Ending retained earnings = beginning retained earnings ± prior-period adjustments + net income − cash dividends − stock dividends
Retention ratio = (net income − dividends) ÷ net income
Dividend payout ratio = dividends ÷ net income = 1 − retention ratio
Sustainable growth rate = return on equity × retention ratio
Example: a company starts the year with $250,000 of retained earnings, earns $80,000 and pays $20,000 in dividends. Ending retained earnings are $250,000 + $80,000 − $20,000 = $310,000. It retained 75% of its profit and paid out 25%.
What increases and decreases retained earnings
Event
Effect on retained earnings
Effect on cash
Net income for the period
Increase
Usually increases, but not by the same amount
Net loss for the period
Decrease
Usually decreases
Cash dividend declared and paid
Decrease
Decrease
Stock dividend
Decrease (moved to paid-in capital)
None
Stock split
None
None
Correction of a prior-period error
Increase or decrease
None in the current period
Issuing new shares
None (goes to paid-in capital)
Increase
Tips
Sole proprietors and partnerships usually track owner's equity or capital accounts instead; owner draws play the role of dividends.
Check your balance sheet ties out. The ending figure should match retained earnings on the period-end balance sheet; a gap usually means a missed adjustment or dividend.
Read the trend. Steadily rising retained earnings show a business funding growth from its own profits; a falling balance with steady dividends means payouts are outrunning earnings.
Frequently asked questions
What is the retained earnings formula?
Ending retained earnings = beginning retained earnings + net income − dividends. For example, $250,000 beginning balance + $80,000 net income − $20,000 dividends = $310,000 ending retained earnings. A net loss is subtracted instead of added.
What is the retention ratio?
The retention ratio, or plowback ratio, is the share of net income kept in the business: (net income − dividends) ÷ net income. With $80,000 net income and $20,000 dividends it is 75%. It always equals 100% minus the dividend payout ratio.
Can retained earnings be negative?
Yes. When cumulative losses and dividends exceed cumulative profits, the balance becomes negative and is called an accumulated deficit. It is common for young companies that have not yet become profitable.
Are retained earnings the same as cash?
No. Retained earnings are a part of shareholders' equity that records profits kept over time. Those profits may already have been spent on inventory, equipment or debt repayment, so a company can have large retained earnings and little cash.
Do stock dividends reduce retained earnings?
Yes. A stock dividend moves value from retained earnings to paid-in capital, so retained earnings fall even though no cash leaves the company. Total equity stays the same.
What is the sustainable growth rate?
Sustainable growth rate = return on equity × retention ratio. It estimates how fast a company can grow using only retained profits, without new equity or a higher debt ratio. A 14% ROE with a 40% retention ratio supports about 5.6% growth.
Where do I find beginning retained earnings?
Use the ending retained earnings from the previous period's balance sheet or statement of retained earnings. A brand-new business starts at zero.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.