Earnings and Profits (E&P)
Understanding Earnings and Profits
Earnings and Profits (E&P) measure a corporation's economic ability to distribute dividends. Although similar to retained earnings, E&P is calculated under federal tax principles and is critical in determining dividend treatment.
Note
Earnings and Profits is a tax concept and should not be confused with retained earnings under financial accounting.
Summary
E&P determines whether shareholder distributions are treated as taxable dividends.