Understanding Statement of Retained Earnings
Master the essential financial statement that tracks your company's retained profits and dividend distributions
What is a Statement of Retained Earnings?
A Statement of Retained Earnings (SRE) is a financial statement that reports the changes in a company's retained earnings over a specific period. It bridges the gap between the income statement and balance sheet by showing how profits are either reinvested into the business or distributed to shareholders.
Key Components:
- Beginning Retained Earnings Balance
- Net Income/Loss from the current period
- Dividend payments and distributions
- Stock repurchases
- Prior period adjustments
- Ending Retained Earnings Balance
Retained Earnings Calculator
Real-World Examples
Frequently Asked Questions
Why is the Statement of Retained Earnings important?
The Statement of Retained Earnings provides crucial insights into a company's dividend policies, reinvestment strategies, and overall financial health. It helps investors understand how a company manages its profits and creates long-term value.
How often should it be prepared?
The Statement of Retained Earnings is typically prepared quarterly and annually, coinciding with other financial statements. Public companies must prepare it as part of their regular financial reporting requirements.
What causes negative retained earnings?
Negative retained earnings can occur due to accumulated losses over time, excessive dividend payments, or significant one-time losses. This situation often indicates financial distress and may require attention from management.