The Ending Retained Earnings Formula is a calculation of the previous owner’s equity from one accounting period to the next. It indicates how much net income—or loss—the business has experienced over the course of the accounting period by subtracting all distributions and dividends paid out during the period from the beginning balance retained earnings. As such, it is an essential component of any business’s financials because it gives an indication of the ability of the business to generate a profit in the future. By understanding this formula and being able to calculate it accurately, businesses can ensure they are striving towards profitability and putting themselves in a strong financial position going forward.