What are retained earnings in a company?

Retained earnings represent the portion of a company's net income that is kept within the company rather than distributed to shareholders as dividends. This accumulation of profits serves as a source of funding for future growth and investment. By retaining earnings, companies can reinvest in operations, pay down debt, or save for future needs. Retained earnings are reflected on the balance sheet under equity and are crucial for evaluating a company's financial health and its ability to sustain operations without external financing. This is why the concept is central to understanding a company's long-term strategy and performance. The other options do not pertain to the concept of retained earnings specifically, as they refer to assets, liabilities, and shareholder contributions instead.