Definition of Statement Retained Earnings
Statement Retained Earnings
One of the basic financial statements; it takes the beginning balance of retained earnings and adds net income, then subtracts dividends. The statement of retained earnings is prepared for a specified period of time.
Related Terms:
An adjunct to the balance sheet, providing more detailed information about the beginning balance, changes, and ending balance in
the retained earnings account during the reporting period.
earnings of a firm as reported on its income statement.
An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.
Net income for the company during the period.
A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.
EPS, as it is called, is a company's profit divided by its number of outstanding
shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would
be $1 per share. The company often uses a weighted average of shares outstanding over the reporting term.
Plowback rate.
Positive or negative differences from the consensus forecast of earnings by institutions
such as First Call or IBES. Negative earnings surprises generally have a greater adverse affect on stock prices
than the reciprocal positive earnings surprise on stock prices.
The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.
The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.
earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.
A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.
The tendency of portfolios of stocks with a low price-earnings ratio to
outperform portfolios consisting of stocks with a high price-earnings ratio.
A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.
A statement published by an issuer of a new municipal security describing itself and the issue
Price/earnings ratio (PE ratio)
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current
stock price by current earnings per share (adjusted for stock splits). earnings per share for the P/E ratio is
determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher
"multiple" means investors have higher expectations for future growth, and have bid up the stock's price.
Pro forma financial statements
Financial statements as adjusted to reflect a projected or planned transaction.
Pro forma statement
A financial statement showing the forecast or projected operating results and balance
sheet, as in pro forma income statements, balance sheets, and statements of cash flows.
Registration statement
A legal document that is filed with the SEC to register securities for public offering.
Retained earnings
Accounting earnings that are retained by the firm for reinvestment in its operations;
earnings that are not paid out as dividends.
Statement billing
Billing method in which the sales for a period such as a month (for which a customer also
receives invoices) are collected into a single statement and the customer must pay all of the invoices
represented on the statement.
Statement of cash flows
A financial statement showing a firm's cash receipts and cash payments during a
specified period.
Statement-of-cash-flows method
A method of cash budgeting that is organized along the lines of the statement of cash flows.
Statement of Financial Accounting Standards No. 8
This is a currency translation standard previously in
use by U.S. accounting firms. See: statement of Accounting Standards No. 52.
Statement of Financial Accounting Standards No. 52
This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: statement of Financial Accounting
Standards No. 8.
CASH-FLOW STATEMENT
A statement that shows where a company’s cash came from and where it went for a period of time, such as a year.
Earnings per share of common stock
How much profit a company made on each share of common stock this year.
INCOME STATEMENT
An accounting statement that summarizes information about a company in the following format:
Net Sales
– Cost of goods sold
--------------------
Gross profit
– Operating expenses
--------------------
earnings before income tax
– Income tax
--------------------
= Net income or (Net loss)
Formally called a “consolidated earnings statement,” it covers a period of time such as a quarter or a year.
RETAINED EARNINGS
Profits a company plowed back into the business over the years. Last January’s retained earnings, plus the net income or profit that a company made this year (which is calculated on the income statement), minus dividends paid out, equals the retained earnings balance on the balance sheet date.
Cash Flow statement
A financial report that shows the movement in cash for a business during an accounting period.
Earnings before interest and taxes (EBIT)
The operating profit before deducting interest and tax.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
The operating profit before deducting interest, tax, depreciation and amortization.
Financial reports or statements
The Profit and Loss account, Balance Sheet and Cash Flow statement of a business.
Retained profits
The amount of profit after deducting interest, taxation and dividends that is retained by the business.
Income Statement
One of the basic financial statements; it lists the revenue and expense accounts of the company.
The Income statement is prepared for a given period of time.
Retained earnings
The residual earnings of the company.
Statement of Cash Flows
One of the basic financial statements; it lists the cash inflows and cash outflows of the company, grouped into the categories of operating activities, financing activities, and investing activities. The statement of Cash Flows is prepared for a specified period of time.
basic earnings per share (EPS)
This important ratio equals the net
income for a period (usually one year) divided by the number capital
stock shares issued by a business corporation. This ratio is so important
for publicly owned business corporations that it is included in the daily
stock trading tables published by the Wall Street Journal, the New York
Times, and other major newspapers. Despite being a rather straightforward
concept, there are several technical problems in calculating
earnings per share. Actually, two EPS ratios are needed for many businesses—
basic EPS, which uses the actual number of capital shares outstanding,
and diluted EPS, which takes into account additional shares of
stock that may be issued for stock options granted by a business and
other stock shares that a business is obligated to issue in the future.
Also, many businesses report not one but two net income figures—one
before extraordinary gains and losses were recorded in the period and a
second after deducting these nonrecurring gains and losses. Many business
corporations issue more than one class of capital stock, which
makes the calculation of their earnings per share even more complicated.
statement of cash flows
One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the business’s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income
statement.
diluted earnings per share (EPS)
This measure of earnings per share
recognizes additional stock shares that may be issued in the future for
stock options and as may be required by other contracts a business has
entered into, such as convertible features in its debt securities and preferred
stock. Both basic earnings per share and, if applicable, diluted
earnings per share are reported by publicly owned business corporations.
Often the two EPS figures are not far apart, but in some cases the
gap is significant. Privately owned businesses do not have to report earnings
per share. See also basic earnings per share.
earnings before interest and income tax (EBIT)
A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.
earnings per share (EPS)
See basic earnings per share and diluted earnings per share.
statement of financial condition
See balance sheet.
financial reports and statements
Financial means having to do with
money and economic wealth. statement means a formal presentation.
Financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
Financial reports also include footnotes to the financial statements and
much other information. Financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply
financials.
income statement
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
net income (also called the bottom line, earnings, net earnings, and net
operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.
price/earnings ratio (price to earnings ratio, P/E ratio, PE ratio)
This key ratio equals the current market price
of a capital stock share divided by the earnings per share (EPS) for the
stock. The EPS used in this ratio may be the basic EPS for the stock or its
diluted EPS—you have to check to be sure about this. A low P/E may signal
an undervalued stock or may reflect a pessimistic forecast by
investors for the future earnings prospects of the business. A high P/E
may reveal an overvalued stock or reflect an optimistic forecast by
investors. The average P/E ratio for the stock market as a whole varies
considerably over time—from a low of about 8 to a high of about 30.
This is quite a range of variation, to say the least.
profit and loss statement (P&L statement)
This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
statement.
stockholders' equity, statement of changes in
Although often considered
a financial statement, this is more in the nature of a supporting schedule
that summarizes in one place various changes in the owners’ equity
accounts of a business during the period—including the issuance and
retirement of capital stock shares, cash dividends, and other transactions
affecting owners’ equity. This statement (schedule) is very helpful
when a business has more than one class of stock shares outstanding
and when a variety of events occurred during the year that changed its
owners’ equity accounts.
Basic Earnings Power Ratio
Percentage of earnings relative to total assets; indication of how
effectively assets are used to generate earnings. It is calculated by
dividing earnings before interest and taxes by the book value of all
assets.
Earnings per Share
A measure of the earnings generated by a company on a per
share basis. It is calculated by dividing income available for
distribution to shareholders by the number of common shares
outstanding.
Price to Earnings Ratio (P/E, PE Ratio)
A measure of how much investors are willing to pay for each dollar
of a company's reported profits. It is calculated by dividing the
market price per share by the earnings per share.
mission statement
a written expression of organizational purpose that describes how the organization uniquely meets its targeted customers’ needs with its products or services
Statement on Management Accounting (SMA)
a pronouncement developed and issued by the Management
Accounting Practices Committee of the Institute of Management
Accountants; application of these statements is
through voluntary, not legal, compliance
values statement
n organization’s statement that reflects its
culture by identifying fundamental beliefs about what is
important to the organization
vision statement
a written expression about the organization’s
future upon which all company personnel can base
their decisions and behavior so that everyone is working
toward the same long-run results
Income statement
A financial report that summarizes a company’s revenue, cost of
goods sold, gross margin, other costs, income, and tax obligations.
Retained earnings
A company’s accumulated earnings since its inception, less any distributions to shareholders.
Statement of cash flows
Part of the financial statements; it summarizes an entity’s cash
inflows and outflows in relation to financing, operating, and investing activities.
common-size income statement
Income statement that presents items as a percentage of revenues.
income statement
Financial statement that shows the revenues, expenses, and net income of a firm over a period of time.
price-earnings (P/E) multiple (ratio)
Ratio of stock price to earnings per share.
retained earnings
earnings not paid out as dividends.
statement of cash flows
Financial statement that shows the firm’s cash receipts and cash payments over a period of time.
Roth IRA. An IRA account whose earnings are not taxable at all under certain
circumstances.
Abusive Earnings Management
The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.
Abusive Earnings Management
A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.
Adjusted Earnings
Net income adjusted to exclude selected nonrecurring and noncash items of reserve, gain, expense, and loss.
Core Earnings
A measure of earnings that includes only the results of the primary operating
activities of the firm. It is most common to see the measure used by financial firms.
Cost Plus Estimated Earnings in Excess of Billings
Revenue recognized to date under the percentage-of-completion method in excess of amounts billed. Also known as unbilled accounts
receivable.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.
Earnings Management
The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.
EBBS - Earnings before the bad stuff
An acronym attributed to a member of the Securities and
Exchange Commission staff. The reference is to earnings that have been heavily adjusted to
remove a wide range of nonrecurring, nonoperating, and noncash items.
EBDDT - Earnings before depreciation and deferred taxes
This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.
Operating Earnings
A term frequently used to describe earnings after the removal of the
effects of nonrecurring or nonoperating items.
Operational Earnings Management
Management actions taken in the effort to create stable
financial performance by acceptable, voluntary business decisions. An example: a special discount
promotion to increase flagging sales near the end of a quarter when targets are not being met.
Premanaged Earnings
earnings before the effects of any earnings-management activities.
Restatement of Prior-Year Financial Statements
A recasting of prior-year financial statements to remove the effects of an error or other adjustment and report them on a new basis.
Pro-Forma Earnings
Reported net income with selected nonrecurring items of revenue or gain
and expense or loss deducted from or added back, respectively, to reported net income. Occasionally
selected nonoperating or noncash items are also treated as adjustment items.
Real Actions (Earnings) Management
Involves operational steps and not simply acceleration
or delay in the recognition of revenue or expenses. The delay or acceleration of shipment would
be an example.
Sustainable Earnings
Reported earnings that have had the after-tax effects of all material
items of nonrecurring revenue or gain and expense or loss removed.
Reinstatement
This is the restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.
Earnings
In general, refers to a company's total sales less cost of sales and operating expenses, including interest and income tax.
External Financial Statements
Corporate financial statements that have been reported on by an external independent accountant.
Income Statements
A financial statement that displays a breakdown of total sales and total expenses.
Price / Earnings (P/E) Ratio
The ratio of price to earnings. Faster growing or less-risky firms typically have higher P/E ratios than either slower-growing or more risky firms.
Retained Earnings
Net profits kept to accumulate in a business after dividends are paid.
Temporary accounts
The accounts found on the Income statement and the statement of retained earnings; these accounts are reduced to zero at the end of every accounting period.
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