What does negative retained earnings generally indicate about a company's financial performance?

Negative retained earnings indicate that a company has accumulated more losses than profits over time. Retained earnings represent the portion of net income that is retained by the company instead of being paid out as dividends; therefore, when this figure is negative, it signifies that the total losses have surpassed the profits earned since the company's inception.

This financial metric is critical in evaluating the overall health and performance of a company. It suggests that the business has faced challenges and has not been able to generate sufficient income to offset its losses, which can be a signal to investors regarding the company's profitability and financial stability.

While negative retained earnings can raise concern and may be associated with other issues—such as potential financial distress—they do not inherently imply that a company is in bankruptcy. Bankruptcy is a legal status that involves the reorganization or liquidation of a business rather than a mere reflection of retained earnings. Similarly, negative retained earnings do not guarantee an inability to pay dividends; companies can still pay dividends even when retained earnings are negative, though this may not be sustainable long-term.