Final answer:
Net income results in an increase in retained earnings, which is the cumulative amount of net income retained after dividends are paid. This measure is key in evaluating a company's reinvestment capabilities and dividend payment potential.
Step-by-step explanation:
Net income, as opposed to a net loss, causes retained earnings to increase. Retained earnings represent the cumulative amount of net income or net loss that a company retains after it has paid out dividends to its shareholders. Therefore, when a company reports a net income, this amount is added to the retained earnings balance from the previous period, leading to an increase. Conversely, reporting a net loss would decrease the retained earnings. It's an important metric for assessing a company's ability to reinvest in its operations or pay dividends to shareholders.