# Retained Earnings A clear monthly view of how profit, dividends, and other equity movements shape retained earnings and total shareholders' equity. - Canonical: https://finamodel.com/templates/retained-earnings - Excel download: https://finamodel.com/templates/retained-earnings.xlsx - Category: Corporate Finance - Model type: Operating model - Difficulty: Intermediate - Audiences: CFOs & FP&A, Founders & operators, CFOs, FP&A teams, Controllers, Treasury - Tags: retained earnings, equity, dividends, stockholders equity, month-end close ## Overview Use this retained earnings model to explain the change in shareholders' equity from one month to the next. Start with opening retained earnings, add profit, account for dividends, and keep other adjustments visible in one clean schedule. It is useful for month-end reporting, board packs, and dividend planning. The workbook also separates dividends declared from dividends paid, so outstanding obligations do not disappear from view. ## What's included - Opening balances for retained earnings, common stock, APIC, treasury, AOCI, and dividend payable - Monthly net-income plan and monthly dividend declaration plan with declared-to-paid lag (months) - Six adjustment lines: SBC, prior-period, OCI reclassifications, cumulative accounting change, treasury retirement, other - Equity Master with opening, activity, closing, and mix per component (treasury treated as contra) - Dividend Schedule with opening / declared / paid / closing payable and cumulative declared and paid - 12-month retained-earnings roll-forward with monthly payout and retention ratios - Closing RE = opening + net income - dividends declared + total adjustments identity at every month - Dashboard with closing RE, RE growth, annual NI, annual dividends, payout, retention, return on RE, dividend payable, closing equity - Status thresholds for payout ratio and return on opening RE (green / amber) - Monthly net-income plan and monthly dividend declaration plan with declared-to-paid lag - Opening balances for retained earnings, common stock, APIC, treasury stock, AOCI, and dividend payable - Six-line equity adjustment panel: SBC, prior-period, OCI reclass, cumulative accounting change, treasury retirement, other - Equity Master with opening, activity, closing, and mix percentage per component (treasury treated as contra) - Dividend Schedule with declared, paid, opening / closing payable, and cumulative declared / paid - 12-month retained-earnings roll-forward: opening, net income, dividends, six adjustment lines, total adjustments, closing, monthly payout and retention ratios - Dashboard with closing RE, RE growth, annual NI, annual dividends declared, payout ratio, retention ratio, return on opening RE, dividend payable, dividends paid, closing equity - Equity composition block: paid-in, retained, treasury (contra), AOCI with % of equity ## Inside the Retained Earnings Model: How Monthly Equity Rolls Forward This page explains the inner workings of the retained earnings model: a monthly roll-forward that ties net income, dividends, and equity-component activity to closing shareholders' equity. It covers operating drivers, calculation flow, outputs, and practical use, helping you evaluate whether the template fits month-end reporting, board packs, and dividend planning before you open the values-only preview. ### What Drives the Monthly Equity Roll-Forward The schedule starts from per-component opening balances covering common stock, additional paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income split into CTA, AFS, pension, and hedging sub-components. Monthly net income, often the single hand-off from the income statement, feeds the roll-forward directly. - Dividend policy can be set three ways through a toggle: a constant quarterly payout, a percentage of monthly net income, or custom monthly amounts. A monthly activity panel routes stock-based compensation, treasury retirements, and OCI reclasses to their own equity accounts rather than distorting retained earnings. - Retained earnings also accepts prior-period, cumulative accounting change, and other adjustments that legitimately land there. ### How the Roll-Forward and Supporting Schedules Calculate Each month's opening retained earnings equals the prior month's closing balance. Closing retained earnings is opening plus net income, minus dividends declared, plus any retained earnings adjustments. - Dividends declared follow the chosen policy, while dividends paid lag by a documented pay-lag, and the opening dividend payable is released at the corresponding month. Other equity components update independently: APIC grows by stock-based compensation, treasury reflects retirement activity, and AOCI aggregates its four sub-component movements. - Total equity sums common stock, APIC, retained earnings, minus treasury, plus AOCI, with treasury subtracted because it is contra-equity. Annual figures pull from monthly totals, and year-two through year-five roll forward from annual flex inputs. ### Outputs and Reporting Views The model produces a monthly retained earnings roll-forward with payout and retention ratios, plus a dividend schedule separating declared from paid amounts and tracking the payable balance. A single-year Equity Master shows opening, activity, and closing balances per component, while a multi-year Annual_Rollforward extends the view across five years. - Per-share metrics include EPS, DPS, BVPS, and dividend yield. A 10-K-style statement of stockholders' equity matrix presents events by equity component, and a dashboard surfaces headline metrics with traffic lights for payout, earnings yield on retained earnings, and return on equity, along with equity composition. - Eight integrity checks on the Checks sheet test roll-forward identities with conditionally formatted pass or fail results. ### Using the Schedule in Practice This equity-side template fits month-end reporting, board packs, and dividend planning. Because stock-based compensation, treasury retirements, and OCI movements are routed to their proper equity accounts, the retained earnings balance reflects only legitimate items such as prior-period adjustments and cumulative accounting changes. - Dividends declared remain visible as a payable until paid, so outstanding obligations do not disappear. A net loss period can push retained earnings negative and flip status indicators to the worst tier, while a pay-lag beyond twelve months accumulates declarations as a closing payable. - The scope is the equity section of the balance sheet only; net income is the single income statement input, so pair it with a full three-statement model for an integrated view. ## Built for the equity walk at month-end When the question is "what moves retained earnings from prior period to current?", a clean roll-forward with NI, dividends declared, and the six recurring adjustment lines is the cleanest answer. This template gives controllers an audit-ready equity walk that ties to net income and the dividend-payable accrual every month. ## Designed for one-edit responsiveness Every input - opening balance, monthly NI, dividend declared, pay-lag, adjustment, threshold - is a named-range or named-cell input. Flex one number and the RE roll, the dividend schedule, the equity composition, and the dashboard status all recompute - no formula rewrites. ## Honest about declared-vs-paid timing Dividends declared in month r are paid in month r + Pay_Lag. The opening dividend payable releases in the first month after the lag. The Dividend Schedule shows opening / declared / paid / closing payable so the accrual is auditable, and the M12 closing payable explicitly shows how much rolls into next year as still-owed cash. ## Built for the equity walk at month-end When the question is "what moves retained earnings from prior period to current?", a clean roll-forward with NI, dividends declared, and the six recurring adjustment lines is the cleanest answer. This template gives controllers an audit-ready equity walk that ties to net income and the dividend-payable accrual every month. ## Designed for one-edit responsiveness Every input - opening balance, monthly NI, dividend declared, pay-lag, adjustment, threshold - is a named-range or named-cell input. Flex one number and the RE roll, the dividend schedule, the equity composition, and the dashboard status all recompute - no formula rewrites. ## Honest about declared-vs-paid timing Dividends declared in month r are paid in month r + Pay_Lag. The opening dividend payable releases in the first month after the lag. The Dividend Schedule shows opening / declared / paid / closing payable so the accrual is auditable, and the M12 closing payable explicitly shows how much rolls into next year as still-owed cash. ## Workbook structure ### Cover Workbook overview, sheet legend, and tab-colour key for navigation. - Title and scope framing - Sheet-by-sheet purpose summary - Tab-colour legend ### Assumptions Every driver in one sheet: opening balances, monthly NI, dividends, adjustments, thresholds. - Opening retained earnings, common stock, APIC, treasury, AOCI, and dividend payable - 12-month net-income plan and 12-month dividend declaration plan - Dividend pay-lag (months) as a named-cell input - Six adjustment lines each with a 12-month plan - Payout-ratio and return-on-RE traffic-light thresholds (green / amber) ### Equity Master Per-component opening, activity, closing, and mix of stockholders' equity. - One row per equity component (common stock, APIC, retained earnings, treasury contra, AOCI) - RE activity computed as closing RE minus opening (annual NI - dividends + adjustments) - Total-equity row subtracts treasury explicitly - Mix column nets treasury for an intuitive composition view ### Dividend Schedule 12-month declared-vs-paid roll-forward with cumulative totals. - Opening payable rolls from previous month's closing - Dividends declared each month pull from the Assumptions named ranges - Dividends paid each month pull from declared at (t - Pay_Lag); opening payable releases at Pay_Lag - Cumulative declared and cumulative paid for YTD tracking ### Retained Earnings Schedule 12-month RE roll-forward with payout and retention ratios. - Opening RE rolls from prior month's closing; first month uses Opening_RE - Net income and dividends declared pull from the Assumptions named ranges - Six adjustment rows reference Assumptions directly - Total adjustments and closing RE = opening + NI - dividends + total adjustments - Monthly payout ratio = dividends / NI (with zero guard); retention = 1 - payout ### Dashboard Headline metrics with traffic-light status and equity composition. - Closing retained earnings, RE growth, annual NI, annual dividends, annual adjustments - Payout ratio with On track / Watch / Stretched status - Retention ratio and return on opening RE with On track / Watch / Heavy draw status - Closing dividend payable and dividends paid YTD - Closing total equity - Equity composition block: paid-in, retained, treasury (contra), AOCI with % of equity ### Cover Workbook overview, sheet legend, and tab-colour key for navigation. - Title and scope framing - Sheet-by-sheet purpose summary - Tab-colour legend ### Assumptions Every driver in one sheet: opening balances, monthly NI, dividends, adjustments, thresholds. - Opening retained earnings, common stock, APIC, treasury, AOCI, and dividend payable - 12-month net-income plan and 12-month dividend declaration plan - Dividend pay-lag (months) as a named-cell input - Six adjustment lines each with a 12-month plan - Payout-ratio and return-on-RE traffic-light thresholds (green / amber) ### Equity Master Per-component opening, activity, closing, and mix of stockholders' equity. - One row per equity component (common stock, APIC, retained earnings, treasury contra, AOCI) - RE activity computed as closing RE minus opening (annual NI - dividends + adjustments) - Total-equity row subtracts treasury explicitly - Mix column nets treasury for an intuitive composition view ### Dividend Schedule 12-month declared-vs-paid roll-forward with cumulative totals. - Opening payable rolls from previous month's closing - Dividends declared each month pull from the Assumptions named ranges - Dividends paid each month pull from declared at (t - Pay_Lag); opening payable releases at Pay_Lag - Cumulative declared and cumulative paid for YTD tracking ### Retained Earnings Schedule 12-month RE roll-forward with payout and retention ratios. - Opening RE rolls from prior month's closing; first month uses Opening_RE - Net income and dividends declared pull from the Assumptions named ranges - Six adjustment rows reference Assumptions directly - Total adjustments and closing RE = opening + NI - dividends + total adjustments - Monthly payout ratio = dividends / NI (with zero guard); retention = 1 - payout ### Dashboard Headline metrics with traffic-light status and equity composition. - Closing retained earnings, RE growth, annual NI, annual dividends, annual adjustments - Payout ratio with On track / Watch / Stretched status - Retention ratio and return on opening RE with On track / Watch / Heavy draw status - Closing dividend payable and dividends paid YTD - Closing total equity - Equity composition block: paid-in, retained, treasury (contra), AOCI with % of equity ## Features - **Identity-clean roll-forward:** Closing RE = opening + net income - dividends declared + total adjustments at every month. The total-adjustments row sums the six adjustment lines explicitly so the size of non-NI moves is visible next to the income line. - **Declared-vs-paid dividend split:** Each month's dividends declared are paid with a user-set lag (named-range input). The Dividend Schedule rolls opening / declared / paid / closing payable so the contra-equity flow is auditable and the year-end payable balance is explicit. - **Stockholders'-equity composition:** The Equity Master sheet rolls common stock, APIC, retained earnings, treasury (contra), and AOCI from opening through annual activity to closing, with a total-equity row that subtracts treasury and a mix column that nets treasury for an intuitive composition view. ## Use cases - **Equity reporting for the close:** Controllers flex any input - NI, dividends declared, pay-lag, adjustment - and the RE roll, dividend schedule, equity composition, and dashboard recompute. Useful for the equity walk that closes alongside the IS / BS at month-end. - **Dividend policy modelling:** Toggle the dividend declaration plan and the pay-lag to test cash impact and payout ratio against the board threshold. The payable-balance roll shows when each cash leg lands. - **Equity composition for a fundraise:** The Equity Master sheet gives a clean snapshot of the equity mix going into a round - useful when prepping a cap-table conversation about how much earned equity sits versus paid-in capital and what dilution math looks like off a current base. ## Frequently asked questions ### What is a retained-earnings model? A retained-earnings model rolls the retained-earnings balance forward month by month from opening + net income - dividends declared + adjustments = closing. It also tracks the dividend-payable balance separately, so the declared-vs-paid timing flows are audit-clean. ### How does the dividend pay-lag work? Each month's dividends declared are paid Pay_Lag months later. The first month's payment in the model pays out the opening dividend payable (a single named-range input). Subsequent months pay the declaration from (current month - Pay_Lag). The lag is a single named-cell input so flexing it reshapes the entire payable roll. ### Why are there six adjustment lines instead of one "other"? The six lines are the recurring equity adjustments most operators end up tracking separately - stock-based compensation, prior-period adjustments, OCI reclassifications, cumulative effect of accounting changes, treasury stock retirements, and other. Keeping them broken out makes the equity walk legible to auditors and removes the need to expand the model when one of these items comes up. ### What if net income is negative? The model permits it. Closing RE = opening + (negative NI) - dividends + adjustments, which may print negative if losses compound. The dashboard return-on-RE check flips to "Heavy draw" below the amber threshold so the warning is visible. ### Can I add more equity components? Yes. Extend the opening-balance block on Assumptions, add the corresponding row on Equity Master with the right opening / activity / closing formulas, and update the total-equity row to include or contra the new component. The dashboard mix block points at Equity Master row positions explicitly. ## Related templates - [3 Statement Model](https://finamodel.com/templates/3-statement-model) - [Cap Table Management Model](https://finamodel.com/templates/cap-table-model) - [Share Buyback Program Model](https://finamodel.com/templates/share-buyback-model)