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.

Unlike operating profit, retained profit accounts for money taken out of a business as drawings or dividends.

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

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FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.