Welcome to our next monthly installment of financial insights! This month we’ll explore the Retained Earnings Statement. It can sometimes feel like a forgotten statement – yet it is a very important tool for businesses.
Retained Earnings Statement: What is it? What can it help with?
The purpose of a retained earnings statement is to show the changes in equity accounts over time. Equity is a measure of the net worth of your business after adding in assets and taking away liabilities.
Investors can see the value by looking at these key components:
- Net Profit or Loss: During the period as reported on the Income Statement (P&L)
- Share Capital: Issued or repaid during the period
- Performance Evaluation: How effectively your business generates cash
- Dividend Payments: Made to shareholders
- Gains or Losses: Directly recognized in equity
- Accounting Changes: Due to policy updates or error corrections
The purpose of issuing a statement of retained earnings is to enhance market and investor confidence in the organization. This statement serves as an indicator to evaluate the financial health of the company. Retained earnings are not surplus funds; rather, they are typically reinvested back into the organization.
Contact AcumenAlly Consulting to discuss your financial needs.
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