The indicator refers to the division of capital and reserves, it is calculated as the difference between gross profit and payments to shareholders (dividends on ordinary and preferred shares), taxes, penalties. The volume of retained earnings covers the development costs of the company (for example, the purchase of new production facilities) and is stored in the form of cash (for example, cash balances) or securities. A leveraged business uses this financial flow to pay off loans and borrowings; stable companies form a reserve fund from retained earnings to cover unforeseen expenses.
The volume of retained earnings is affected by:
Net profit volume. If the company has not paid dividends in the current year and it has no deferred tax liabilities, accounting standards do not differentiate between retained and net profit.
The amount of dividend payments. Organizations that increase reserve funds or face urgent expenses are forced to reduce the amount of dividend payments, which increases the amount of retained earnings.
Taxation standards. The increase in the tax burden on business and the receipt of benefits from regulatory authorities affect the amount of tax collections.
Business strategy. Acquisition of new land plots, production facilities, vehicles, change of organizational and legal form increase the tax burden, change the efficiency of work.
More here - https://en.wikipedia.org/wiki/Retained_earnings
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