How are retained earnings calculated?

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Retained earnings are determined by taking the retained earnings at the prior period, and, including net income of the period and deducting net loss and dividends paid to its shareholders. The formula is:
Retained Earnings = Beginning Retained Earnings + Net Income (or – Net Loss) Less Dividends.
This amount shows how much the company has reinvested, meaning profit. Retained earnings may be used for any purpose as they include financing business expansion or paying off debts, and are a significant source that reflects a company’s financial situation.

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