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# Retained Earning & dividends

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### Retained Earning & dividends

1. 1. Retained Earning & Dividends Malik Waqas Anjum Roll No. 50
2. 2. Long Term Finance Owned Funds Capital (Shares) Retained Earnings Borrowed Funds
3. 3. Retained Earning Definition “The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt” Formula Retained Earning (R.E)= Begning Retained Earning + Net income -Dividends (R.E ) Also known as the "retention ratio" or "retained surplus".
4. 4. Purposes Of Retained Earnings 1 . Accumulation Of Earnings 2. Investment in Fixed assets 3. To meet working capital needs
5. 5. Calculation f Retained Earning Suppose a company ABC Having Net Profits In current accounting period = \$ 5,00000 Dividends pay out = \$ 1,50000 Beginning Retained Earning = \$ 12,00000 Ending Retained Earnings = ??? Solution Begning Retained Earnings +Net Income (Current Accounting Period) -Dividends pay out Ending Retained Earning \$ 12,00000 + \$ 5,00000 -------------\$ 17,00000 - \$ 1,50000 -------------\$ 15,50000
6. 6. In Balance Sheet Assets \$ Liabilities \$ Stock holders Equity Capital \$5000000 +Retained Earning \$1550000 ------------ 3550000
7. 7. Step By Step Calculation Of Retained Earnings 1. Gross Profit = Sale – C.G.S 2. Operating Income = Gross Profit – operating Expenses 3. Pre-tex net income = operating income – interest – 4. After Tex Net Income Depreciation – Amortization = Pre tex net income – Taxes 5. Retained Earning (Current Period )= After Tex net income – Dividends 6. Retainned Earning(Ending Balance) = Retained Earning(Current Period ) + Account balance (Opening Balance)
8. 8. Dividends:“Benefits Provided To the Investors are Called The Dividends ” OR “A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves)” Ways of The dividends Payment Cash Dividends 2. Stock Dividends 3. Liquidating Dividends 1.
9. 9. Payments of Dividends Out Of 1) Retained Earnings 2) Cash Balance (1st Focuse ) (2nd Focuse ) 3) Organization Directors (3rd Focuse )