What is retained profit?
Definition of retained profit
Retained profit is the amount of a business’s net income that is kept within its accounts, rather than paid out to shareholders. Retained profit is a strong indicator of the long-term financial stability of a business.
Retained profit brought forward
Retained profit brought forward is the combined retained profit from every accounting period since a business began. For example, if a business is in its third year and had a retained profit of £5,000 in each of the first two years, then its retained profit brought forward would be £10,000.
Retained profit formula
A simple formula for calculating retained profit (RP) is:
Retained profit brought forward + net income - drawings/dividends = RP