# Extreme cases of Retained-Earnings to Total-Assets Ratio

Following are some companies with negative Retained Earnings to Total Assets Ratios.

      ticker                       industry retained_earnings total_assets      RE_TA
1:   STCN Integrated Freight & Logistics        -7494.1020   147.299000 -50.876802
2:   MACK                  Biotechnology         -546.2240    14.639000 -37.312931
3:   VIAV        Communication Equipment       -69529.9000  1878.000000 -37.023376
4:   OMEX    Specialty Business Services         -283.3211     8.967281 -31.594982
5:   REFR          Electronic Components         -120.3155     3.859915 -31.170499


And following are some companies with very high Retained Earnings to Total Assets Ratios.

      ticker                       industry retained_earnings total_assets      RE_TA
1:    HHS           Advertising Agencies          814.4390   111.114000   7.329760
2:    WAT         Diagnostics & Research         7960.6630  3041.269000   2.617546
3:   LOPE  Education & Training Services         1913.1300   918.386000   2.083144
4:   CHKP         Software - Application        11700.3000  5725.800000   2.043435
5:     WW              Personal Services         2675.7670  1419.426000   1.885105


Questions -

1. For the first set, how can retained earnings go so much negative while the company still has some assets. Won't these companies should already be bankrupt?
2. For the second set, how can a company have retained earnings which is multiple times its assets? What the management is doing so that retained earnings are increasing and total assets are not increasing?

Both of the above scenarios are difficult to understand. Can someone explain how this is even possible?

Here is the inference of this ratio from the website but I am not sure how to interpret these extreme cases - https://accountinginside.com/retained-earnings-to-total-asset/

If the ratio = 0: It means the company relies 100% on debt and shareholder’s capital, they are not yet making any profit and be able to reinvest.

If the ratio = 1: It means the company relies 100% on retained earnings to operate and invest. It is almost impossible in real life. But the cases I showed above have this ratio of more than 1.

If the ratio >0 but <1: It means partial assets are funded by retained earnings while the rest are funded by debt or share capital. It depends on the percentage of ratio.

• 1. Known industries that are somewhat struggling due to covid atm 2. Low margins Jul 27, 2022 at 0:16
• Thanks, Pavel. I see retained earnings as the accumulated money I have collected in banks for rainy days or to expand my business. It is practically possible to have multiple times retained earnings to my assets. But how it is possible to have negative retained earnings that is 50 times more than my assets as in the case of "STCN" stock above. Jul 27, 2022 at 12:07
• "retained earnings [i]s the accumulated money I have collected in banks". No, no, no. Retained earnings is not a pile of cash in a bank somewhere. Jul 28, 2022 at 18:59
• As per Investopedia, Retained earnings (RE) is the amount of net income left over for the business after it has paid out dividends to its shareholders. I think I wrongly assumed that most of it are cash. What other forms can retained earnings be "retained"? Jul 29, 2022 at 7:27
• Remember, Assets = Liabilities + Equity (of which RE are a constituent). There is no rule for where the earnings must be deployed. It can be stored in cash until a worthy project is found for example. A less common use of these funds is stock buy-backs as is the case for HHS. Jul 29, 2022 at 8:30