Earned Capital

The net income of a business is sometimes given the name of the earned capital and may be referred to the retained earnings of a business that is left with the business after paying the dividends to the share holders of the company. The earned capital of a company is negative if it is generating losses however it tends to be positive if the company is continuously growing into profit. The earned capital is also considered as zero if a company distributes all its generated profit to pay the dividends of the share holders. It is considered as positive if a part of earned capital is used recorded as retained earnings and a part of it is used to pay dividend to the shareholders.

A company that is readily growing has a large amount of earned capital balance as it uses all its profit in order to grow its operations instead of issuing dividend to its shareholders. The earned capital balance keeps growing until and unless the company is generating profit. On the other hand a low growing company generally issue dividends to the share holders so the amount of earned capital balance is generally low with such companies.

One thing must be noted that earned capital must not be confused with the paid in capital as paid in capital is the amount of funds paid by the investors into the company where as the earned capital directly comes from the profit that a company makes from its operations or services.



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