How to Find the Statement of Retained Earnings in a Company's 10-k

The stock of a company with a high P/E ratio relative to its industry peers may be considered overvalued. A company with a low price compared with its earnings might appear to be undervalued. Earnings that deviate from the expectations of the analysts that follow that stock can have a great impact on the stock’s price, at least in the short term. For instance, if analysts on average estimate that earnings will be $1 per share and they come in at $0.80 per share, the price of the stock is likely to fall on that “earnings miss.”

Dividends are generally paid in cash or additional shares of stock, or a combination of both. When a dividend is paid in cash, the company pays each shareholder a specific dollar amount according to the number of shares they already own. A company that declares a $1 dividend, therefore, pays $1,000 to a shareholder who owns 1,000 shares.

Are Dividends Irrelevant?

Any item that impacts net income (or net loss) will impact the retained earnings. Such items include sales revenue, cost of goods sold (COGS), depreciation, and necessary operating expenses. A maturing company may not have many options or high-return projects for which to use the surplus cash, and it may prefer handing out dividends. The decision to retain the earnings or to distribute them among shareholders is usually left to the company management. However, it can be challenged by the shareholders through a majority vote because they are the real owners of the company.

  • The equity capital/stockholders’ equity can also be viewed as a company’s net assets.
  • Some companies may decide to retain their earnings to re-invest for growth opportunities instead.
  • These reduce the size of a company’s balance sheet and asset value as the company no longer owns part of its liquid assets.
  • The retained-earnings account is one of the line items under the shareholders’-equity section of the balance sheet.

Conceptually, stockholders’ equity is useful as a means of judging the funds retained within a business. If this figure is negative, it may indicate an oncoming bankruptcy for that business, particularly if there exists a large debt liability as well. Earnings are the profit that a company produces in a specific period, usually defined as a quarter or a year. After the end of each quarter, analysts wait for the earnings of the companies they follow to be released. Earnings are studied because they represent a direct link to company performance. The dividend yield is the dividend per share and is expressed as dividend/price as a percentage of a company’s share price, such as 2.5%.

Dividend, an individual share of earnings distributed among stockholders of a corporation or company in proportion to their holdings and as determined by the class of their holdings. Dividends are usually payable in cash, although sometimes distributions are made in the form of additional shares of stock. In a dividend reinvestment plan (DRIP), dividends are automatically reinvested in additional shares of stock.

How to Report S Corporation Shareholder Withdrawals

Dividend reinvestment plans (DRIPs) are commonly offered by individual companies and mutual funds. The retained earnings portion of stockholders’ equity typically results from accumulated earnings, reduced by net losses and dividends. Like paid-in capital, retained earnings is a source of assets received by a corporation.


When reading through any financial statements on annual reports, I always zoomed by the earnings statement because I didn’t know what it was. Overall, the taxability of an S corporation’s distributions is impacted by the combination of its earnings and profits, stock basis, and the accumulated adjustments account (AAA). For this reason, many investors view companies with negative shareholder equity as risky or unsafe investments. Shareholder equity alone is not a definitive indicator of a company’s financial health. If used in conjunction with other tools and metrics, the investor can accurately analyze the health of an organization. Earnings per share (EPS) is a commonly cited ratio used to show the company’s profitability on a per-share basis.

Distribution Payable: Meaning

Stockholders’ equity includes retained earnings, paid-in capital, treasury stock, and other accumulative income. Stock dividends do not have the same effect on stockholder equity as cash dividends. According to the Corporate Finance Institute, in contrast to dividends, retained earnings represent the profits the company chose not to distribute to its shareholders. A company can calculate its retained earnings by subtracting dividends paid to shareholders from net income. The balance in the retained-earnings account is directly related to the net income or net losses within a firm. A company experiencing a net income for several years usually operates with a large retained-earnings account, and the opposite is true when a company incurs net losses for several consecutive years.

How a Cash Dividend Works

However, the main advantage of a stock dividend for the company is that the retained earnings can all be reinvested for greater growth. The main advantage of a stock dividend for the stockholder is that no taxes have to be paid on the stock dividend until the shares are sold. Specific tax implications for the dividend payments vary depending on the type of dividend declared, account type in which the shareholder owns the shares, and how long the shareholder has owned the shares.

On the other hand, when a company generates surplus income, a portion of the long-term shareholders may expect some regular income in the form of dividends as a reward for putting their money in the company. Traders who look for short-term gains may also prefer dividend payments that offer instant gains. Stockholder equity also represents the value of a company that could be distributed to shareholders in the event of bankruptcy. If the business closes shop, liquidates all its assets, and pays off all its debts, stockholder equity is what remains. It can most easily be thought of as a company’s total assets minus its total liabilities.

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