Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Unappropriated Retained Earnings

What it is:

Unappropriated retained earnings are profits that are not set aside for a specific purpose.

How it works (Example):

Let's say Company XYZ makes $1 million in profits this year. It sets aside $200,000 of those profits to buy a new factory machine; the remaining $800,000 are unappropriated retained earnings.

Why it Matters:

Companies have two choices when it comes to profits: save them or spend them. Unappropriated retained earnings are profits that aren't spent, so they often become dividends.

Changes in the level of unappropriated retained earnings can send a signal to investors about what a company has planned. An increase, for example, could mean that the company is planning on investing less in the business in the near future. Though this frees up cash to give back to shareholders, that might not be the right course of action if the company needs to invest in better machinery, talent or other assets in order to remain competitive.