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Trying to get my head around a balance sheet and can't make sense of the fact that a company can make year on year profits and pay out dividends each year, yet the retained earning deficit increases each year,

The following is a good example of my point;

BAE Balance Sheet

Please can someone explain this discrepancy to me, or most likely, what part of this have I misunderstood.

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Always go to the source.

Statements will show why Retained Earnings decreased over a year.

From the BAE 2014 Annual Report

enter image description here

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Retained earnings are the portion of a company's income that management retains for internal operations instead of paying it to owners in form of dividends.

Over the course of a year retained earnings increase or decrease. The fluctuations are mainly due to the following reasons:

  1. Net gains.

  2. Net losses.

  3. Dividend payments.

So in the BAE Sytems Plc's case it is the 'Common Dividends Paid' which have been increasing from 606 GBP in 2011 to 642 GBP in 2014 i.e. an increase of 6%.

Also its net income has dropped from 1240 GBP in 2011 to 740 GBP in 2014 with a massive decline in 2013.

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