Unappropriated Retained Earnings
What are Unappropriated Retained Earnings?
Unappropriated retained earnings are profits that are not set aside for a specific purpose.
How Do Unappropriated Retained Earnings Work?
Let's say Company XYZ makes $1 million in profits this. It sets aside $200,000 of those profits to buy a new factory machine; the remaining $800,000 are unappropriated retained earnings.
Why Do Unappropriated Retained Earnings Matter?
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 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.