The retention ratio is an important financial metric that indicates how much of a company’s net income is kept for future growth instead of being paid out as dividends. It helps investors, managers, and students see whether a business is focused on growth, paying off debt, or returning profits to shareholders.
Use the retention ratio calculator below to quickly compute the using your retained earnings and net income.
Retention Ratio Calculator
Retention Ratio = Retained Earnings ÷ Net Income
What Is the Retention Ratio?
The Retention Ratio is also known as the Plowback Ratio, measures the percentage of earnings a company keeps rather than distributes as dividends. It is a key indicator of growth strategy, internal financing, and long-term sustainability.
Retention Ratio Formula:
Retention Ratio = Retained Earnings ÷ Net Income
- Retained Earnings: Profit kept by the business after paying dividends.
- Net Income: Total profit after expenses, taxes, and interest.
The result can be shown as a decimal or percentage (e.g., 0.60 or 60%).
Why Is the Retention Ratio Important?
- Shows Growth Strategy
A high retention ratio means the company puts more of its profits back into operations, growth, or product development.
- Helps Evaluate Dividend Policy
Businesses with lower retention ratios usually pay larger dividends to shareholders.
- Indicates Financial Stability
Steady retained earnings can suggest that a company is making healthy profits and managing them well.
- Useful for Investors and Business Owners
Investors look at the retention ratio to assess future earnings potential. Business owners use it to plan for reinvestment and expansion.
How to Use the Calculator
- Enter your Retained Earnings.
- Enter your Net Income.
- Click Calculate.
- The calculator instantly displays:
- The retention ratio
- The percentage retained
You can use it for business planning, financial analysis, and academic assignments.