We recently received a feature request from one of our users to add “Retained Earnings” to our software.
What are Retained Earnings?
Retained earnings represent the cumulative net income a company has reinvested into the business instead of distributing to shareholders as dividends. In other words, it’s the company’s “savings account” of profits.
Retained Earnings = Beginning Retained Earnings + Net Income − Dividends Paid
This figure accumulates over time and reflects how much profit a company has decided to keep rather than return to shareholders. High retained earnings suggest a firm has consistently made profits and reinvested them.
Let’s compare two companies: Apple and Goldman Sachs
Retained Earnings: Apple vs. Goldman Sachs
As of their latest filings:
- Apple Inc. had retained earnings of approximately $3 billion.
- Goldman Sachs reported retained earnings exceeding $140 billion.
This comparison may seem surprising at first—after all, Apple is one of the most profitable companies in the world. So why does a financial firm like Goldman Sachs have retained earnings that dwarf Apple’s?
1. Dividend and Buyback Philosophy
Apple has paid significant dividends and engaged in massive share buybacks. Since 2012, Apple has returned hundreds of billions of dollars to shareholders, reducing its retained earnings in the process. This was a strategic choice to reward investors and reduce excess cash.
Goldman Sachs, on the other hand, has historically paid more conservative dividends and buybacks relative to its earnings. The firm tends to retain a large portion of its profits to meet regulatory capital requirements and to support future investment opportunities, such as trading capital or acquisitions.
2. Business Model and Regulatory Requirements
Goldman Sachs operates in a capital-intensive and highly regulated industry. As a major investment bank, it needs to maintain strong capital reserves to comply with Basel III regulations and withstand market shocks. Retaining earnings is one of the primary ways to build that buffer.
Apple, while capital-intensive in R&D and hardware production, doesn’t face the same regulatory capital requirements. Moreover, Apple’s enormous cash reserves (much of which were held overseas until recent tax reforms) meant it didn’t need to rely on retained earnings in the same way.
3. Use of Retained Earnings
Goldman uses retained earnings to:
- Maintain risk buffers
- Fund trading desks and investment banking operations
- Meet regulatory ratios (like Tier 1 capital requirements)
Apple uses retained earnings to:
- Invest in new products, supply chains, and technologies
- Fund marketing and international expansion
- Supplement shareholder returns
In Apple’s case, excess cash and borrowings have been used as alternatives to retained earnings for strategic initiatives, including acquisitions and R&D.
Retained Earnings and Excel Price Feed
So, how do we easily retrieve retained earnings in Excel? We can use the new formula:
=EPF.Yahoo.AnnualRetainedEarnings("GS",2024)Which returns the Goldman Sachs retained earnings for 2024.
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