Glossarytaught in M1.09, M3.07
Retained earnings
Also called surplus in statement of profit and loss, accumulated profits.
The running total of every rupee of profit the company has earned and not paid out. It is the link between the income statement and the balance sheet, and the reason the two are not independent documents.
A company that earned ₹615 crore and paid 30% of it as dividend adds ₹430.5 crore to retained earnings.
Retained earnings are a scorecard for capital allocation. Money kept back should earn more inside the business than the shareholder could have earned with it elsewhere, and over a decade the test is measurable: compare the growth in market value to the profits retained over the same period.
A company that has retained ₹4,000 crore over ten years and added ₹1,000 crore of market value has destroyed value while reporting profit growth every year. Do that comparison before you believe any compounding story.
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