Retained earnings, also known as retained surplus, are the portion of a company's profits that it keeps to reinvest in the business or pay off debt, rather than paying them out as dividends to its investors.
Retained earnings are one component of the corporation's net worth and increase the supply of cash that's available for acquisitions, repurchase of outstanding shares, or other expenditures the board of directors authorizes.
Smaller and faster-growing companies tend to have a high ratio of retained earnings to fuel research and development plus new product expansion. Mature firms, on the other hand, tend to pay out a higher percentage of their profits as dividends.
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