Calculates retained earnings out of the box

Description

Retained earnings represent the net income that's retained by the company rather than distributed as dividends. The correct calculation and tracking of these figures are crucial for understanding a company's financial health and making strategic business decisions.

Example Use Case

Scenario: A mid-sized manufacturing company is using CPM software for financial planning. The company distributes a portion of its profits as dividends, while the rest is retained for future investments and growth plans. The finance department needs an accurate, timely, and hassle-free calculation of retained earnings for various reporting and decision-making requirements.

Solution: With the CPM software's built-in functionality to calculate retained earnings, the finance department can instantly obtain these figures without having to manually compute them. Also, this feature ensures accurate and consistent calculation across all financial periods and scenarios.

Considerations

If the product doesn't offer this as a built-in calculation (some don't), make sure it can accomplish this in a single formula. Some products would break the following down into a stepped 3-part formula which is a hassle to maintain.

Retained Earnings at End of Period = Retained Earnings at Beginning of Period + Net Income (or Net Loss) - Dividends Paid


This formula requires that the system has a way to look at a point in time and assign a variable for period, making the formula re-usable.

Questions to Ask a Vendor

• Automatic Calculation: Does your system automatically calculate retained earnings out-of-the-box or does it require consultants to write a formula?
• Formulas with Period Variables: Is the system re-usable as time goes on, meaning that we do not have to modify it each period?