<h2>Retained Earnings: A Comprehensive Guide</h2>

<p>Retained earnings, a crucial concept in corporate finance, refer to the portion of a company's profits that are reinvested into the business, rather than being distributed as dividends to shareholders. It represents the cumulative amount of profit that a company has earned and kept over its lifetime, after accounting for all dividends paid out.</p>

<h2>How It Works</h2>

<p>Retained earnings are calculated by subtracting the total dividends paid out from the company's net income over a specific period. The formula is:</p>

<table>
  <tr>
    <th>Retained Earnings</th>
    <th>=</th>
    <th>Opening Retained Earnings</th>
    <th>+</th>
    <th>Net Income</th>
    <th>-</th>
    <th>Dividends</th>
  </tr>
</table>

<p>For instance, if a company starts with $100,000 in retained earnings, earns $50,000 in net income, and pays out $20,000 in dividends, its new retained earnings would be $130,000.</p>

<h2>Why It Matters for Traders</h2>

<p>Retained earnings provide valuable insights into a company's financial health and growth prospects. For traders, understanding retained earnings can help in:</p>

<ul>
  <li><strong>Assessing Financial Health</strong>: High retained earnings can indicate a company's ability to generate profits and reinvest them into the business.</li>
  <li><strong>Evaluating Growth Potential</strong>: A company with substantial retained earnings may have the financial capacity to fund expansion projects or research and development.</li>
  <li><strong>Analyzing Dividend Policy</strong>: Companies with high retained earnings might choose to pay out more dividends, attracting income-oriented investors.</li>
</ul>

<h2>Example</h2>

<p>Consider two companies, A and B, both with $100,000 in opening retained earnings. Company A earns $50,000 in net income and pays out $20,000 in dividends, ending with $130,000 in retained earnings. Company B, however, earns $100,000 in net income but pays out $50,000 in dividends, ending with $150,000 in retained earnings. Despite having the same opening retained earnings, Company B's higher net income and lower dividend payout result in more significant retained earnings, indicating stronger financial health and growth potential.</p>

<h2>Key Takeaways</h2>

<ul>
  <li>Retained earnings represent the cumulative profit a company has reinvested into the business.</li>
  <li>They are calculated by subtracting dividends from net income.</li>
  <li>For traders, understanding retained earnings can help assess a company's financial health, growth potential, and dividend policy.</li>
  <li>When using platforms like <strong>MetaTrader 5</strong> to trade stocks or ETFs, consider reviewing companies' retained earnings as part of your fundamental analysis.</li>
</ul>