Posted on July - 05 - 2010
Retained Earnings Calculation
“Many stock options in the corporate world have worked in exactly that fashion: they have gained in value simply because of management retained earnings, not because it did well with the capital in its hands. ” ~ Warren Buffet
This was a strong statement on the importance of retained earnings. Whenever an organization reaps a huge profit in its business, it either pays its employees/shareholders cash flow such as dividends or reinvests a portion of the profit in business again. So for retaining earnings in business, there should always be a proof on how the earnings have been utilized in increasing the profitability of a business. So the executives of a company create a balance sheet under shareholder equity giving a gist of the retained earnings calculation. Full Post…