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Retention Ratio Calculator

See how much of earnings a company reinvests.

Result

70.00%
30.00%

How it is calculated

The retention (plowback) ratio is the share of profit a company keeps instead of paying out: retention = (NI − D) / NI = 1 − D / NI. NI is net income for the period and D is the dividends declared for the same period, both in the same currency. The tool also shows the dividend payout ratio, D / NI, which is the complement: the two always add up to 100%. Net income must be above zero, otherwise no result is returned. If the dividends you enter exceed net income, the engine caps them at net income, so retention bottoms out at 0% and does not go negative. A negative dividend is rejected. The ratio is a share of earnings, not of cash, and says nothing about how well the retained money is used.

Worked example

A company earns a net income of 500,000 in a year and pays 150,000 in dividends. The payout ratio is 150,000 / 500,000 = 0.30, or 30.00%. The company keeps the rest: 500,000 − 150,000 = 350,000. Dividing that by net income gives 350,000 / 500,000 = 0.70, so the retention ratio is 70.00%. Of every 100 units earned, 70 stay in the business for growth, debt repayment or reserves.

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Common mistakes

  • Using dividends per share together with total net income. Both numbers must be company totals, or both per share.
  • Entering a different year's dividends against this year's profit, which hides the true payout.
  • Including share buybacks in dividends, or leaving them out, without realising that buybacks are another way of returning earnings.
  • Reading a high retention ratio as automatically good. Retained profit only helps shareholders if it is reinvested at a decent return.

Sources

About this calculator

The retention ratio — also called the plowback ratio — measures how much of a company's net income it keeps and reinvests rather than paying out as dividends: retention ratio = (net income − dividends) / net income = 1 − payout ratio. A company retaining 70% of earnings is funding growth (R&D, expansion, debt paydown) with internal cash rather than distributing it to shareholders.

Equity analysts and portfolio managers use the retention ratio inside the sustainable growth rate formula (g = ROE × retention ratio) to estimate how fast a company can grow without external financing, and to distinguish growth-oriented stocks (high retention, low or no dividend) from income-oriented ones (low retention, high payout). Finance students meet it early in coverage of the dividend discount model.

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Comments (1)

  • Editorial team

    If you enter dividends larger than net income, for instance a payout funded from past reserves, the tool caps the payout at 100 percent and shows retention as 0. A loss makes the calculation impossible, so no result appears. Keep net income and dividends on the same basis, both totals or both per share. The ratio says how much was kept, not how well it was reinvested; compare it with earnings growth over the following years. Which sector are you looking at?

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