What do retained earnings represent in a business?

Retained earnings represent the portion of a company's profits that are kept in the business rather than being distributed to shareholders as dividends. This figure is crucial because it reflects the cumulative profit that the company has reinvested in itself over time, which can be used for various purposes such as funding new projects, paying off debt, or saving for future investments.

When a business earns profit, it has the option to distribute some of that profit to shareholders in the form of dividends. The remaining profit, after these distributions, is what constitutes retained earnings. This not only indicates how well a company is performing but also demonstrates the company's strategy regarding growth, investment, and shareholder returns. A strong retained earnings figure can signify that a company is prioritizing long-term growth by reinvesting its profits back into the business.

The other options do not accurately depict what retained earnings are. Debt owed to creditors refers to liabilities, while funds set aside for future loans do not represent retained earnings' purpose. All revenue generated in a year includes even the gross income before expenses and dividends are accounted for, which again does not define retained earnings. Thus, the accurate portrayal of retained earnings is captured by the understanding of profits after expenses and dividends.