Retained earnings are:
A)the amount of cash that the ﬁrm has saved up.
B)the difference between the net income earned and the dividends paid.
C)the difference between the market price of the equity and the book value.
D)the amount of shares repurchased.
E)None of the above.

Question

Quizplus · Accepted Answer

Retained earnings represent the portion of the company's profits that the company has not paid out as dividends. It is the difference between the net income earned and the dividends paid. Therefore, option B is the correct answer. Option A is incorrect because retained earnings do not necessarily have to be cash. Option C is incorrect because it refers to the difference between market price and book value rather than retained earnings. Option D is incorrect because share repurchases do not affect retained earnings.

Retained Earnings Are