{"id":4088,"date":"2024-06-24T10:18:55","date_gmt":"2024-06-24T10:18:55","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/?post_type=glossary&p=4088"},"modified":"2024-06-24T10:18:56","modified_gmt":"2024-06-24T10:18:56","slug":"retention-ratio","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/retention-ratio\/","title":{"rendered":"Retention Ratio"},"content":{"rendered":"

The retention ratio<\/a>, also known as the plowback ratio, is a financial term that measures how much of a company’s earnings are retained and reinvested in the business rather than dispersed to shareholders<\/a> as dividend<\/a>s. It is an important indicator of how a firm uses its earnings to drive growth and ensure financial stability.<\/p>\n\n\n\n

Formulas and Calculations<\/h2>\n\n\n\n

The retention ratio is computed with the following formula:<\/p>\n\n\n\n

Retention Ratio = (Net Income − Dividends Paid​)\/Net Income<\/p>\n\n\n\n

Alternatively, it can be represented as:<\/p>\n\n\n\n

Retention Ratio = 1 − Dividend Payout Ratio<\/p>\n\n\n\n

Net Income<\/a><\/strong> refers to the company’s entire earnings after tax<\/a>es and costs.<\/p>\n\n\n\n

Dividends Paid<\/strong> refers to the total dividends paid to shareholders.<\/p>\n\n\n\n

Interpretation.<\/h3>\n\n\n\n

1) High Retention Rate:<\/strong><\/p>\n\n\n\n

    <\/ol>\n\n\n\n