Retained Earnings Explained for Smart Investing

January 3, 20245 min read
Retained Earnings Explained for Smart Investing
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Rather than distributed as shareholder dividends, retained earnings are the portion of company profits reserved for company reinvestment.
  • High retained earnings can indicate consistent profitability and business reinvestment. 
  • Low retained earnings likely means a business has experienced previous-year net income losses and is in poor financial health.

Retained earnings is a crucial concept that investors should thoroughly understand to help them make better investment decisions. They offer important insight into a company’s financial health. With that said, here is retained earnings explained for smart investing.

Retained Earnings 

Rather than distributed as shareholder dividends, retained earnings (RE) are the portion of company profits reserved for company reinvestment.

Such reinvestment is commonly in the form of fixed asset purchases and working capital, as well as clearing debts. It can also include research and development and other growth-generating efforts.

How are Retained Earnings Calculated?

In terms of how to calculate retained earnings, the formula is:

RE = Beginning Period RE + Net Income/Loss – Cash Dividends – Stock Dividends


RE = Retained Earnings 

In terms of formula components, “beginning period” refers to the previous year’s retained earnings.

“Net income” is the accounting profit a company has remaining after clearing all its expenses. Meanwhile, “dividends,” whether in cash or in stocks, are shareholders’ cut of business profits.

A retained earnings example:

A company has a beginning RE of $77,232 and an ending one of $78,732. Its net income is $5,297. Thus, $77,232 – $78,732 + $5,297 = $3,797. The latter figure is the amount of dividends paid. 

To calculate retained earnings: $77,232 + $5,297 – $3,797 = $78,732 in retained earnings.

Retained Earnings in Financial Statements

Typically, retained earnings are listed on a company’s balance sheet following each accounting period in the shareholders’ equity section.

An example: After being reported on the balance sheet, the figure becomes a part of a business’s overall book value. 

Also, movements in a company’s equity balances, including RE, are recorded on statement of changes in equity. For publicly traded companies, this supplemental statement is required.

Analyzing Retained Earnings for Business Insights

Retained earnings represent a key variable for gauging a company’s financial health. A business can use it to see the net income it has saved over time. With that information, the company can decide to either reinvest or distribute to shareholders.

Note that high retained earnings can indicate consistent profitability and business reinvestment. However, it can also suggest ineffective profit reinvestment or insufficient shareholder returns. Low retained earnings likely means a business has experienced previous-year net income losses. This state could signal poor financial health.

Further, “negative retained earnings” commonly indicates that the current period’s net loss exceeds the retained earnings’ beginning balance. 

Retained earnings, as an indicator of company health, can impact investment decisions. Note, though, that while the figure shows a company’s past earnings, there are no guarantees regarding future performance. Nor are there guarantees of optimal reinvesting.

Thus, it may be better for investors to focus on a business’s long-term return on assets, return on invested capital, and growing cash flows and per-share earnings. That data can clarify how well the company has allocated retained earnings.

Can Retained Earnings Affect Company Growth?

If a company is focused on growth and expansion, it may just pay small dividends, if at all. Why? Because it would rather employ retained earnings to fund R&D, working capital requirements, or marketing efforts. To achieve more growth, the company may also use retained earnings to finance capital expenditures and acquisitions.

Still, companies must carefully consider how they balance dividends distribution and retained earnings. Low dividend payouts allow the company to grow. Such growth can result in more profits. In turn, that can lead to higher investor dividend payouts. However, lower dividends can also reduce the company’s stock price since they can signal a weakened financial position.

Dividends are usually paid from a company’s earnings. Thus, if earnings drop over time, the company must decide to either heighten its payout or find capital elsewhere.

Retained Earnings, Dividend Payout Ratios, and Real Estate

A dividend payout ratio refers to the percentage of earnings a company paid to shareholders through dividends. Say a 25% dividend payout ratio shows that Company X is paying a quarter of its net income to shareholders. The net income balance – 75% — that the company keeps for growth is retained earnings.    

Dividend payouts vary depending on the industry. Therefore, the ratio is commonly used to make industry-wide comparisons. For example, real estate investment trusts (REITs) have tax favorability. Because of that, they must distribute at least 90% of earnings to shareholders.

The leading investment platform Yieldstreet has the broadest selection of alternative assets available. Its private-market offerings include REITs.

Another important reason to put capital in alternatives – basically assets other than stocks or bonds – is portfolio diversification.  Creating a modern portfolio of varying asset types, and anticipated performances, can lessen overall risk. It can also potentially improve returns.

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.


It is important for investors to fully understand retained earnings, and how to analyze them, before investing in a company. Despite their limitations, such earnings represent the reinvestment of profits and are a key indicator of a company’s financial health. 

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure