Determine the percentage of net income that a company keeps to reinvest in its core business rather than paying out as dividends.
Income Allocation
Formula: Retention Ratio = (Net Income - Dividends) / Net Income
Retention Analysis
Retention Ratio70.0%Portion Reinvested
Dividend Payout Ratio30.0%
Net Income Distribution
About this calculator
Overview
Determine the percentage of net income that a company keeps to reinvest in its core business rather than paying out as dividends.
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Pro Tips
What is the Retention Ratio?: The retention ratio (or plowback ratio) is the portion of net income that is retained by a company rather than distributed as dividends. It reflects the company's growth strategy.
Retention vs. Payout Ratio?: They are mirror images. If the payout ratio is 30% (30% of profits paid as dividends), the retention ratio is 70%. Together they always equal 100%.
What is a 'good' Retention Ratio?: High-growth companies (like startups) usually have a 100% retention ratio. Mature companies with fewer reinvestment opportunities (like utilities) often have lower retention and high payouts.
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Fun Facts
"The retention ratio is a primary component of the 'Sustainable Growth Rate' (SGR) formula."
"Warren Buffett's Berkshire Hathaway has historically had a 100% retention ratio, never paying a dividend."
"A high retention ratio only creates value if the company can reinvest those funds at a rate higher than its cost of capital."
