Warren Buffett is considered among the greatest investors of all time, having helped Berkshire Hathaway generate a compound annual gain of 19.8% from 1965 to 2022, smashing the S 500's total return of 9.9%. With Buffett's long track record, investors would be wise to read about his techniques, which he generously shares in his annual letter to shareholders. In recent years, Buffett has highlighted the importance of retained earnings.

Let's delve into the retained earnings formula, explore why Buffett favors this metric, and highlight two stocks in Berkshire's portfolio that excel at it.

Retained earnings is a line item on the balance sheet demonstrating a company's accumulated profits over its lifetime. It is calculated by taking a company's net lifetime earnings and subtracting its dividends paid (and any net losses). Companies can use retained earnings to expand, make acquisitions, pay down debt, and repurchase their stock.

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Source Fool.com