To calculate retained earnings, add any new earnings to the existing retained earnings figure, then subtract any dividends paid out of these earnings. What proportion of net income is retained vs.

Here is the formula for calculating dividends: Annual net income minus net change in retained earnings = dividends paid. Image source: Getty Images. Second, the income statement in the annual ...

Having a large retained earnings balance allows a company to pay consistent dividends with no negative surprises. In addition, the company can keep cash on hand to reinvest in its future expansion.