Retained earnings on a balance sheet are the retained profits of a company that have been reinvested in the business and kept for future use. They reflect the net income, or profit, earned by the company over time, less any dividends paid out to shareholders. Essentially, they represent the profits that have been accumulating in the company since its inception. Retained earnings are important because they help companies grow while maintaining financial security. By reinvesting their profits back into the business, companies can acquire new assets, fund expansion projects, and buy back shares – all of which help them further develop and remain profitable.