What are retained earnings?

Retained earnings represent the cumulative amount of net income that a company has earned over time, minus any dividends that have been paid out to shareholders. This figure is an important aspect of a company's equity, as it shows how much profit has been reinvested in the business instead of being distributed to shareholders. Retained earnings can be used for various purposes, such as funding new projects, paying off debt, or strengthening the company's balance sheet.

In contrast, sales revenue refers to the total income generated from selling goods or services, which does not account for net income or earnings retained. Current liabilities are debts or obligations that a company must settle within a year, which are different from earnings that are retained. Lastly, expenses incurred in business operations relate to the costs of running a business, impacting net income but not defining retained earnings directly. Therefore, the concept of retained earnings is specifically about the profits kept within the company for growth and operations rather than distributions or other financial metrics.