Retention Ratio Calculator | Formula | Guide

Retention Ratio Calculator

Retention Ratio = Retained Earnings ÷ Net Income

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Enter values and click Calculate.

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?

  1. Shows Growth Strategy

A high retention ratio means the company puts more of its profits back into operations, growth, or product development.

  1. Helps Evaluate Dividend Policy

Businesses with lower retention ratios usually pay larger dividends to shareholders.

  1. Indicates Financial Stability

Steady retained earnings can suggest that a company is making healthy profits and managing them well.

  1. 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

  1. Enter your Retained Earnings.
  2. Enter your Net Income.
  3. Click Calculate.
  4. The calculator instantly displays:
    • The retention ratio
    • The percentage retained

You can use it for business planning, financial analysis, and academic assignments.