Retained earnings by definition is a cumulative net earning or profit of a company after the counts of dividend payments. Retained earnings is another expression for shareholder equity. But it does not take the full meaning of retained earnings. Shareholder equity is a company’s share capital and these earnings that are less than the value of treasury shares. Although this expression is not common, every method yields the exact figure of the total liabilities that signifies a company’s financial health.
There are some components in shareholder equity. This is actually one of the parts in the shareholder equity and the percentage of net earnings unpaid to shareholders as dividends. Since it represents a cumulative total of profits, retained earnings could mean savings. This is because it could be saved and put aside for future use. In other words, it could get larger over time reflecting the income.
In this case, the amount of accumulated retained earnings could be more than the amount of equity capital for stockholders. Because the retained earnings are usually the biggest component of stockholders’ equity for companies in many years. It is important to note that treasure shares here are different from the U.S. Treasury bills.
Companies could repurchase if the management cannot deploy all the available equity capital in ways to deliver the expected returns. This is because treasury shares are from the shares bought by companies. The dollar value is also in the treasury stock account. This is the contra account to the accounts of investor capital and retained earnings.
