How to Deal with Retained Earnings?

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If you have followed a company for a long time as an investor, you may have considered many factors of the company. What I want to tell you is that you need to investigate the treatment of the company's retained earnings.

For any company, retained earnings is a very critical corporate financial factor. What you need to do is to observe the final whereabouts of the retained earnings of these companies.

Next, I will analyze the specific practices of some companies on retained earnings to help you make a calm judgment and successfully invest.

Generally, if some companies have made a considerable amount of profits within one year, they will reasonably distribute these funds and carry out some similar treatment. For example, if a company has a large number of shareholders and these shareholders are mainly investors in the stock market, the company will distribute more than 50% of the retained earnings to these shareholders through dividends or interest. In addition, if the stock holders of a company are mainly employees within the company, the retained earnings of the company may be distributed to employees through year-end bonus or other types of subsidies. In general, companies are used to sharing most of their retained earnings. The remaining retained earnings are often used by companies as funds for business development.

For some companies, they may have a lot of industrial equipment and machine shops. What you need to know is that these devices and machines will often suffer losses or even failures after working at high power for a period of time. Therefore, companies in these manufacturing industries will use a large part of retained earnings as maintenance costs to maintain the equipment. In an industry with fierce competition and rapid technological change, companies even need to buy new advanced equipment to replace the original equipment every year. Some companies need to build a new factory to expand their production business and improve production efficiency. In general, these companies regard retained earnings as the basis for consolidating their position within the industry.

For some Internet or financial companies, they do not need a lot of equipment and machines. Therefore, these companies generally use retained earnings as start-up capital to develop their business or expand the market. Some technology companies will also use a large amount of retained earnings as research and development funds for new products or technologies. Financial companies tend to increase their retained earnings through investment.

In conclusion, as an investor, you need to pay special attention to the companies whose market value is rising. You know how the retained earnings of these companies are handled through investigation. You need to know if they are using retained earnings properly and saving costs. Of course, if you are an investor who is keen to gain profits by investing in stocks, you need to pay attention to companies that have almost no retained earnings. However, you should note that although these companies have little retained earnings, their annual business profits are large. Therefore, these companies tend to share most of their profits with shareholders. You need to choose these companies as your investment targets.

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