Which statement best describes retained earnings?

Retained earnings represent the cumulative amount of net income that a company has kept within the business instead of distributing it to shareholders as dividends. This reinvestment can be utilized for various purposes such as funding new projects, expansion, paying off debt, or covering operational expenses, thus supporting business growth and sustainability. Retained earnings reflect the company’s ability to generate profits and retain them for future investments, making option B the most accurate description.

In contrast, profit distributed to shareholders pertains to dividends, which is an entirely different concept. Funding solely from external investors refers to capital raised through equity or debt, not related to retained earnings, which come from internal profit accumulation. Lastly, while retained earnings can provide some insight into a company's financial health, they do not measure operational efficiency but rather show how much profit has been retained versus paid out.