TJB_NC

Mad Poet

Retained earnings are defined as earnings that are retained by the company as opposed to being distributed to shareholders via dividends.

By retaining earnings, the company has the ability to reinvest those earnings or otherwise use those earnings to improve the company.

Obviously earnings that are distributed to shareholders are no longer available to the company, and reflect a belief - perhaps - that the shareholder knows better what to do with the money that the company has earned through its operations.

There are some investment camps that put considerable emphasis on retained earnings - read, for example, Marty Whitman's thoughts on value investing.

Others, of course, seem to want companies to distribute as much of the earnings as possible to the shareholders (I tend to think that if someone doesn't think the company knows what to do with the money it is making, he/she may want to find another company in which to invest).

Of course, certain asset subclasses, such as REITs, are required by law to distribute a set percentage of earnings to shareholders.

It can actually be a great point to consider, and the level of importance that someone puts on retained earnings can tell quite a bit about that person's investment philosophy.

Hope this helps.

Regards,

TJ