Definition
Reserves and Surplus
Reserves and surplus are the accumulated profits and other equity surpluses a company has built up, sitting alongside share capital within shareholders' equity.
This balance-sheet head groups items such as retained earnings, securities premium (the amount received above face value on share issues), general reserve, capital reserve and revaluation reserve. Free reserves can be distributed as dividends or used for bonus issues, while certain reserves are restricted.
The size and composition of reserves indicate a company's internal capital strength. Analysts distinguish free, distributable reserves from notional ones like revaluation reserves when assessing real net worth and dividend or buyback capacity.
Related terms
- Revaluation ReserveA revaluation reserve is the increase in the carrying value of an asset, typically property, recorded directly in equity when the asset is revalued upward.
- Retained EarningsRetained earnings are the cumulative profits a company has kept and reinvested rather than paid out as dividends, forming part of shareholders' equity.
- Shareholders' EquityShareholders' equity is the residual interest in a company's assets after deducting liabilities, comprising share capital, reserves and retained earnings.
- Share Capital vs ReservesShare capital is the par value of shares issued to owners, while reserves are accumulated profits and other surpluses; together they form shareholders' equity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.