Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors. a company cumulative earnings since the corporation was formed. In most cases, companies retain earnings to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development.

Formula for retain earning:
Beginning retained earnings + Profits/losses - Dividends = Ending retained earnings

Benefits have of having retained earnings is companies to have financial resources to reinvest in their operations, creating growth. Retained earnings fund several projects such as research and development and facility construction, renovation and expansion. Companies also use retained earnings to purchase equipment and other assets as well as pay off company debts and liabilities.

What Horizontal Analysis does is compare the net income of the current period with the net income of the prior period.

This Analysis is used to determine how a company is growing overtime.  Also to compare a company's growth rates in relation to its competitors and industry. 

The formula for Horizontal Analysis has two process:

First you have to establish if the company net income increase or decrease from the prior year to the current year:
(Net income Current Year)-(Net income Prior Year)=(Increase or Decrease Amount)

Than you would divide the difference of increase or decrease amount to the prior year net income.
Difference of Increase or Decrease Amount/Net Income Prior Year=Percent Amount

This would give you the percentage of the company growth rate.

Here’s an example how to use the horizontal Analysis:
Company A:

• 2015 Net Income: $96,350.00
• 2016 Net Income: $125,589.00

Company B:

• 2015 Net Income: $350,756.00
• 2016 Net Income: $310,278.00

Company C:

• 2015 Net Income: $15,000.00
• 2016 Net Income: $40,250.00

First you would solve for the company net income increase or decrease from the prior year to the current year:

1. Increase of $29,239.00
2. Decrease of $40,478.00
3. Increase of 25,250.00

After you would solve to get the percent amount by dividing the difference of increase or decrease amount to the prior year net income.

1. $29,239.00/$96,350.00= 30%
2. $40,478.00/$350,756.00= 12%
3. $25,250.00/$15,000.00= 168%

The Results show that Company A growth has increase a medium rate while Company B rate has decrease 12%. Company C has grown rapidly during the year. If these company were competing in the same market. The results show that Company B has been losing customer to Company A and C. Company C looks to be a threat to the two company as it establish its self as a true contender.