It is the key determinant of what funds are available to be distributed to shareholders or invested back in the company to promote growth. Top Retained Earnings Retained earnings are the amount of money that a company keeps for future use or investment. Another way to look at it is as the earnings left over after dividends are paid out. Generally, a company has a set policy regarding the amount of dividends it will pay out every year. To better understand retained earnings, we need to explain the nature of dividends.
Dividends are cash payments made to the owners or stockholders of the company.
A profitable year allows them to make such payments, although there generally are no obligations to make dividend payments. When a company has both common and preferred stockholders, the company has two different types of dividends to pay. Every publicly traded company has common stockholders. A firm may decide to plow all of its earnings into new investments to promote future growth. Preferred stockholders are in line before common stockholders if a dividend is declared.