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The ratio which shows the proportion of profits retained in the business out of the current year’s profit is ________

  • The ratio which shows the proportion of profits retained in the business out of the current year’s profit is retained earnings ratio.
  • Retained earnings (RE) is the amount of net income left over for the business after it has paid out dividends to its shareholders.
  • There are two ways in which equity capital can be invested into a business, through the sale of stocks (common or preferred) or through the company's retained earnings.
  • A company can distribute net income to its shareholders through the payment of dividends, or they can keep part or all of their net income and invest back into the company as retained earnings.
  • Hence, retained earnings (RE) is the amount of net income left over for the company after it has paid out dividends to its shareholders.
  • If a company decides to reinvest net income within the company.