Retained earnings is a figure that sits on the balance sheet and we can use base analysis to forecast the retained earnings balance.

The beginning figure would be the retained earnings balance at the start of the year, to that we would add any increase in the retained earnings balance.

So what would make retained earnings go up? Well, that would be the net income earned in the current year.

And we would get that from the bottom of the income statement.

So these reinvested profits increase retained earnings? However, not all of that net income might be reinvested some of it might be paid out to shareholders as a dividend. So dividends would reduce the retained earnings balance as we are paying some of those earnings out to shareholders, and we therefore need to subtract the dividends from retained earnings.

so if we start with the B in base beginning or opening balance of retained earnings

A add the net income for the year.

S subtract the dividends paid that then gives us the E our ending or closing retained earnings balance.