<h2>What is a Statement of Retained Earnings?</h2>
<p>The <strong>Statement of Retained Earnings</strong> (SRE) is a financial statement that reports the changes in a company's retained earnings over a specific period. Retained earnings represent the accumulated profits of a business that have not been distributed as dividends to shareholders. Instead, they are reinvested into the company for growth and expansion.</p>

<h2>How It Works</h2>
<p>The SRE is typically prepared at the end of an accounting period, usually annually, and is presented alongside the company's income statement and balance sheet. It shows the beginning retained earnings balance, the net income earned during the period, any dividends paid out, and the ending retained earnings balance.</p>
<p>The basic formula for the SRE is:</p>
<table>
<tbody>
<tr>
<td>Beginning Retained Earnings</td>
<td>+ Net Income</td>
<td>- Dividends</td>
<td>= Ending Retained Earnings</td>
</tr>
</tbody>
</table>
<p>For example, if a company starts with $100,000 in retained earnings, earns $50,000 in net income, and pays out $20,000 in dividends, the ending retained earnings would be $130,000.</p>

<h2>Why It Matters for Traders</h2>
<p>Understanding the SRE is crucial for traders as it provides insights into a company's financial health and management's capital allocation decisions. Here's why:</p>
<ul>
<li><strong>Financial Health</strong>: The SRE indicates whether a company is generating enough profits to reinvest in its operations or if it's paying out most of its earnings as dividends.</li>
<li><strong>Capital Allocation</strong>: It shows how management is using the company's profits - whether they're investing in growth, paying down debt, or distributing to shareholders.</li>
<li><strong>Dividend Policy</strong>: The SRE reveals a company's dividend policy, which can be important for income-oriented investors.</li>
</ul>

<h2>Example</h2>
<p>Let's consider Apple Inc. In its 2020 Annual Report, Apple reported the following:</p>
<ul>
<li>Beginning Retained Earnings: $84,475 million</li>
<li>Net Income: $57,411 million</li>
<li>Dividends: $13,167 million</li>
<li>Ending Retained Earnings: $128,929 million</li>
</ul>
<p>This shows that Apple generated significant profits and reinvested a substantial portion of them into the business, while also paying out dividends to shareholders.</p>

<h2>Key Takeaways</h2>
<ul>
<li>The Statement of Retained Earnings reports the changes in a company's retained earnings.</li>
<li>It helps traders understand a company's financial health and capital allocation decisions.</li>
<li>Traders can use the SRE to evaluate a company's dividend policy.</li>
<li>The SRE is a key financial statement that complements the income statement and balance sheet.</li>
</ul>