Track cumulative profits kept in the business after dividends by rolling forward beginning retained earnings with net income and payouts.
Retained earnings at start of period
Profit for the period
Total dividends distributed
Other income/losses (optional)
Ending Retained Earnings
of
Beginning RE
Net Income
Dividends Paid
Other Items
Retention Ratio
Earnings retained vs. total
Payout Ratio
Dividends vs. net income
Growth Rate
Period change
Ending Retained Earnings =
Beginning Retained Earnings
+ Net Income
- Dividends Paid
± Other Comprehensive Income
± Prior Period Adjustments
Retention Ratio
= (Net Income - Dividends) / Net Income
Payout Ratio
= Dividends / Net Income
Growth Rate
= Change in RE / Beginning RE
Indicates profitable operations and conservative dividend policy. Shows potential for future growth and financial stability.
May indicate accumulated losses or aggressive dividend payments. Requires careful analysis of underlying causes.
Track retained earnings over multiple periods to identify patterns in profitability and dividend policy.
Compare retention ratios with industry peers to assess relative dividend and reinvestment strategies.
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