retained earnings

Retained earnings are the accumulated profits of a corporation that are not paid out as dividends to its shareholders. That is, the amount of retained earnings is arrived at by adding the net income (or loss) to the retained earnings from the beginning of the accounting period and then subtracting cash, stock, and property dividends. The term is also referred to as accumulated earnings or earned surplus. The earnings are either reinvested in existing business operations, used to fund new projects, mergers or acquisitions, used for share buybacks, or used to pay off outstanding debt. The positioning of the business may influence whether more is kept as retained earnings, or not. More stable companies with shareholders who prefer dividends may allocate more of their profit to dividends than to retained earnings. Growth-focused companies may allocate more of their profits to retained earnings, to fund new projects, or to pay off higher levels of debt.

Under 17 CFR Part 210 (Regulation S-X), the Securities and Exchange Commission (SEC) requires registrants to disclose retained earnings in their financial statements.

[Last reviewed in April of 2026 by the Wex Definitions Team] 

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