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Definition: Return on Retained Earnings - RORE
The return on retained earnings (RORE) is a measure of how well the company has invested its profit of previous years. RORE is represented in percentage form. RORE is a crucial measure while selecting a company to invest in for a long time.
Company pays out dividends from its net earnings, what is left over after paying out the dividends is retained earnings. Company further invests these retained earnings for growth of the business. If the growth is high, investors receive better returns on the stocks. This measures how effectively a business is able to snowball the growth generating compounding returns
A higher return on retained earnings shows that company can reinvest its profits and investors are better off in capital gains rather than getting dividends. However if the return on retained earnings is lower, investors are better off in receiving the dividends and choosing other stocks with higher returns.