Publicly traded companies pay their shareholders in the form of dividends at the end of every quarter once they announce their earnings. A company’s management typically decides what portion of its earnings will go to its shareholders. Whatever is left over qualifies as retained earnings. A company can use this leftover money for other purposes.

Retained earnings can be calculated at the end of every month, quarter, or year. They can be positive or negative depending on whether a company made a profit. A company may also have negative retained earnings if it pays its shareholders more than it spends on other aspects of the business.

Retained earnings aren’t the same as revenue. Revenue is the company’s total earnings over a set period of time before overhead and operating expenses are deducted. Retained earnings make up a portion of a company’s total earnings.

Retained earnings vary based on the dividend payout. Most companies pay at least a portion of their earnings to shareholders. In some cases, the company may even send 100% of its profits to shareholders. New companies usually spend less on dividends and put more towards retained earnings. This gives them extra money to expand the business or develop new products. Companies with low dividend payments may also have a plan for generating additional revenue in the future. Most companies take a more balanced approach by delegating a certain portion of funds to shareholders with some left over for retained earnings.

Retained earnings are often expressed as a percentage of a company’s total earnings. This is known as the retention ratio. It is equal to 1 minus the ratio of dividends payouts.

Companies will also release a retained-earnings statement to show how much they are spending on dividends and how much they are keeping in reserves. Knowing a company’s retained earnings can provide insight into the health of that company. How a company spends its retained earnings can tell you a lot about its priorities. A company with a lot of retained earnings may have a lot of debt, or it may be preparing to expand or merge with another company. A company with little retained earnings may be more focused on paying its shareholders.

You can also compare a company’s retained earnings to its historical records to see how it spends additional revenue over time.

Let’s use Apple as an example.

The company has seen a dramatic decline in retained earnings over the last several years.

In 2018, the company reported retained earnings of $70.4 billion. That dropped to $45.8 billion in 2019 and $14.9 billion in 2020 as the company paid more money to shareholders. In 2021, the company reported retained earnings of just $5.5 billion.

The company is one of the most profitable in the world, with well-known products that have dominated the market for years. More established companies tend to pay more to shareholders as they solidify their place in the market.

However, calculating a company’s retained earnings may not provide much insight into its overall performance. As an investor, it’s usually more helpful to know the returns these earnings generate over time, so you can find out if the company is putting its money to good use.