Retained Earnings

Retained Earnings are one of three categories of owner's equity. Retained earnings represent the money, or earned capital, which the company has realized through profitable operations.  Since stockholders assume the risk of unprofitable operations, they also share in the rewards generated during a profitable fiscal year.

Any portion of net income that is not distributed to common or preferred stockholders, and is held by the company for future use, is placed into retained earnings.  The amount of retained earnings held by a company can be found in the owner's equity section of the balance sheet.