Retained earnings reflect the dividend paying ability of a company.

Question

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Retained earnings represent the cumulative amount of net income earned by a company that has not been distributed to shareholders as dividends but is retained by the company for reinvestment in its operations or to pay debt. It does not directly reflect the company's ability to pay dividends, as this ability is also influenced by its cash flow situation and liquidity.

Retained Earnings Reflect the Dividend Paying Ability of a Company