What are distributable profits?

Distributable profits refer to the profits that a company has available to distribute to its equity holders, such as shareholders. This definition encompasses the profits generated by the company's operations that have been realized and are not subject to any restrictions or obligations, enabling the business to distribute these profits in the form of dividends.

The concept is fundamental in corporate finance and accounting, as it guides the company's policies regarding dividend payments and other returns of profits to shareholders. Companies must ensure that they only distribute profits that are legally available for distribution, as distributions made from non-distributable profits may lead to financial and legal consequences.

Profits available for distribution to equity holders differ from total revenues less expenses, which is a broader measure. The statement about profits reinvested in the business relates to retained earnings rather than distributable profits. Lastly, discussing accrued losses only subtracted from retained earnings does not accurately capture the notion of distributable profits, which are focused on available earnings rather than losses.