What is Retained Earnings?
Retained Earnings is the cumulative profit a company has earned that it hasn’t returned to shareholders through dividends yet. Said differently, it’s the cumulative amount of profit a company has retained within the company after paying dividends. Therefore, it’s called “Retained Earnings”.
As an addition to retained earnings, do you guys think it would be wise to also calculate and follow a cash version of retained earnings too? Rather than just follow the retained net income which is paper profit, also follow the retained operating cash flow or LFCF?
A company can be recording a positive net income each year, however when we look at the cash flow statement it can be losing cash, right? And ultimately it’s the real tangible cash flow that our dividends and any reinvestment comes out of. So why is the general practice in accounting to place emphasis on retained paper earnings and not actual cash flow?
Thanks guys – keep up the epic work with Lumovest! 🙂