Financial Glossary
Addition to Retained Earnings
Addition to retained earnings is the amount of a period's net income that a company retains rather than distributing to owners, calculated as net income minus any dividends or distributions paid. This figure is added to the prior retained earnings balance to arrive at the new balance reported in equity on the balance sheet. A negative result, where distributions exceed earnings, reduces retained earnings.
Problem & Application
For owner-operated businesses, the addition to retained earnings shows how much profit was reinvested versus pulled out as distributions, which matters for funding growth without new debt or equity. An STR or campground owner who takes large distributions may show little or no addition to retained earnings even in a profitable year, signaling thin reinvestment. Tracking it over time reveals whether the business is building or draining its equity cushion.
In Short
Addition to retained earnings links the income statement to the balance sheet and shows how much profit stayed in the business. Watching it is a quick read on reinvestment versus extraction.