I have a company that has retained earnings for 2016 as 526013 (2017RE) and the net income for 2017 is 25134 (2017NI), the dividend paid for 2017 is -41200 (2017DIV) .
Given that the dividend paid is more than net income, is the company paying dividends from retained earnings using 2017RE = 2016RE +2017NI – 2017DIV? What does decreasing retained earnings really mean.
The common case would be that the money retained was used for dividends in arrears, there is usually no restriction on paying out these dividends, this applies even if your revenues were negative.
Your description is essentially right. Retained earnings are cumulative. You add this year's earnings (positive or negative) to the sum of all years past, then you subtract the earnings they choose not to retain within the company (eg pay out as a dividend or repurchase shares). Decreasing retained earnings means, for a given year, they took more out of the business than it earned. Not necessarily a big deal, but not sustainable forever.
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