how do u get retained profits?? (1 Viewer)

[Bowenyong]

whats the equation for retain profits?

 

[jittles]

there shouldn't be questions on deriving retained profits.. profitability equations should be:
-Gross Profit Ratio (GP/SALES x100)
-Net Profit Ratio (NP/SALES x100)
-Return on Owners Equity (NP/OE x100)

 

[determine]

whats the equation for retain profits?

there is no equation specifically for retained profits. however, remember that owner's equity is comprised of shareholders' funds (capital contributed) and retained profits, so if you're given any 2 of these figures, you can work back to find the missing value! hope this helps.

 

[seremify007]

Leading on from determine's post though, I'd just mention retained profits are the profits which have not been distributed either by way of dividend or some other distribution to equity holders.

Remember: if a company makes a profit but doesn't distribute it as dividends, the value of the company's EQUITY goes up. i.e. you don't change the value of existing capital contributions, but instead you add it to the retained profits account.

 

[yoyoyoshi]

there is no equation specifically for retained profits. however, remember that owner's equity is comprised of shareholders' funds (capital contributed) and retained profits, so if you're given any 2 of these figures, you can work back to find the missing value! hope this helps.

Lol, this is pretty much what I learn't today. : P
The way my teacher explained how to find retained profits from a balance sheet extract is to find the missing value.

For example:
Balance Sheet:

(Left Side)
Current Assets
Cash at Bank 20,000
Account Receivable 10,000

Non-Current Assets
Furniture and Fixtures 15,000
Delivery Van 20,000

(Right Side)

Liabilities
Account Payable 5,000

Shareholders Funds 40,000

So, both sides must be equal.
Add both sides up individually, imagine they're side by side lol (I wrote left/right) . You should have 65,000 <---> 45,000, to find the missing value subtract 45,000 from 65,000 and you've got 20,000. That is your retained profits.

 

[seremify007]

Lol, this is pretty much what I learn't today. : P
The way my teacher explained how to find retained profits from a balance sheet extract is to find the missing value.

For example:
Balance Sheet:

(Left Side)
Current Assets
Cash at Bank 20,000
Account Receivable 10,000

Non-Current Assets
Furniture and Fixtures 15,000
Delivery Van 20,000

(Right Side)

Liabilities
Account Payable 5,000

Shareholders Funds 40,000

So, both sides must be equal.
Add both sides up individually, imagine they're side by side lol (I wrote left/right) . You should have 65,000 <---> 45,000, to find the missing value subtract 45,000 from 65,000 and you've got 20,000. That is your retained profits.

Your teacher is right and this will work (for business studies purposes at least) but keep in mind that retained profits is driven by your profit & loss/income statement for the period and as part of the accounting cycle, when you close out a period for a year, you transfer the profit to the retained profits account in the balance sheet so the P&L can start from 0 again.

 

[yoyoyoshi]

Your teacher is right and this will work (for business studies purposes at least) but keep in mind that retained profits is driven by your profit & loss/income statement for the period and as part of the accounting cycle, when you close out a period for a year, you transfer the profit to the retained profits account in the balance sheet so the P&L can start from 0 again.

Someone asked this in class the other day, we didn't go too much into it but this really helped me understand more about it. Thanks : )