The Bug woke up, breathing through an oxygen mask.

"Do you know your name?" said the paramedic.

"Charles Deatherage," said The Bug.

He looked around him and saw that the entire office seemed to be standing right behind the paramedic, staring. Even Roman and Pecunia, two of the partners, were there.

"You're very lucky, Charles," said Pecunia, his face flushed. "You landed on the grass. Do you think you can walk?"

"Sure," said the Bug.

"Not so fast," said the paramedic, glaring at Pecunia, who no doubt was more worried about a lawsuit than anything else. "What day is it today?"

"I have a question for you," replied The Bug."If you look at the balance sheets for Iron Machinery, Inc. [Nasdaq: RUST ] and Tumbleweed Garden Supply, Inc. [Nasdaq: TUMB], why does TUMB have higher retained earnings than RUST? Is it good to have higher retained earnings? What can I tell from retained earnings?"

The paramedic was stunned. Help him, dear reader. Retained earnings is:

1) The income the company earned this year.

2 ) The income the company has earned since it began.

3) The income the company has earned since it began, less the dividends it has paid since it began.

4) None of the above.

The answer is 3) The income the company has earned since it began less the dividends it has paid since it began.

The key is the word "retained," which implies that income, or earnings, remains in the business, rather than being distributed to stockholders as dividends. Retained earnings is an accounting construct. You cannot see, touch, hear, or taste retained earnings. When a company earns income, its assets rise (or liabilities fall) and the resulting increase in stockholders' equity is shown as retained earnings.

Those assembled around The Bug broke into spontaneous applause. Not only did he know what day it is, he had the presence of mind to grill the paramedic about a balance sheet! He'd shown himself to be a survivor, and a fighter. These traits will serve him well when we revisit the brokerage of Roman, Wise, & Pecunia in future episodes.

We now conclude, for the time-being at least, our examination of the balance sheet. Next week we turn our attention to the subject of shorting.

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