What generally impacts retained earnings negatively in a company?

Retained earnings represent the cumulative amount of net income that a company has retained rather than distributed to shareholders as dividends. Therefore, certain actions can negatively impact retained earnings.

Excessive dividend payments or share repurchases directly reduce retained earnings because these actions distribute cash that would otherwise add to the company's accumulated profits. When a company pays out large dividends or repurchases its own shares at a high rate, it diminishes the amount of earnings that are retained in the company for reinvestment or future use. This is crucial for companies looking to maintain or grow their operations but can be detrimental if done excessively.

In contrast, increased interest expenses would lead to lower net income, but they do not directly affect retained earnings unless they result in a net loss or decreased profits after dividends are paid out. Higher levels of net income generally enhance retained earnings, and expansions in business activities could either increase retained earnings or have a neutral effect, depending on their funding and profitability outcomes.