Statement of Retained Earnings

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SAMPLE Consolidated Statement of Retained Earnings
For the Year Ending December 31, 2002

December 31, 2002

$2,185,000   Retained Earnings Beginning of Year
$2,188,000   Net Income

$   700,000   Less Cash Dividends
$3,673,000   Balanced Retained Earnings End of Year

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The statement of retained earnings indicates the amount of the company's earnings (net income from the current income statement) and adds this amount to the previous retained earnings from the balance sheet.  When a company earns a profit, management must decide either to:

1.  Pay out all or part of the earnings to shareholders as dividends; or
2.  Retain the earnings to

• finance the purchase of assets,
• retire debt, or
• grow the other resources of the company.

The retained earnings on the balance sheet are the sum of undistributed earnings of the company that have accumulated over time. 

The statement of retained earnings indicates the amount of retained earnings accumulated at the beginning of the year, and then adds the net income for the period.  If management declares a cash dividend, it is deducted from retained earnings to arrive at the balance of retained earnings for the end of the year, which is carried forward to the balance sheet.

The statement of retained earnings shows you how much net income the company will retain or pay out in dividends for the year - an important factor when you are focusing on dividend-paying stocks.