Retained earnings are the accumulated profits a company has kept rather than paid out as dividends. This guide explains where they sit and why they matter.
Published July 2026 · Updated July 2026
Retained earnings are the total profits a company has made over its life, minus any dividends paid to shareholders. Rather than being distributed, this profit is reinvested or held in the business.
Retained earnings are part of equity and represent a company's built-up value. They also set the ceiling on dividends: a company can only lawfully pay dividends from available retained profits, not from cash alone.
Not necessarily. They're an accounting measure of accumulated profit; the actual money may be tied up in assets or already spent.
The concept mainly applies to companies. Sole traders' kept profits show as owner's capital instead.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.