Retained earnings are an important measure of savings by business firms.

Question

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Retained earnings represent the portion of net income that a company keeps (retains) rather than distributing to its shareholders as dividends. This accumulated amount is reinvested into the company, often for capital improvements, debt reduction, or other financial strategies aimed at enhancing the company's strength and efficiency. Thus, it can be considered an important measure of the savings accumulated by the business over time.

Retained Earnings Are an Important Measure of Savings by Business