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Financial Analysis

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  • June 15, 2021
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Retention Ratio

A financial ratio that relates retained earnings to profits as illustrated in the following:

Retention Ratio

Or also:

Retention ratio = 1- dividend payout ratio

For example, if a company has decided to distribute $30,0000 in cash dividends out of $100,000 it made in profits and keep the remaining amount for internal (organic) expansion, then:

Retention ratio = 70,000/ 100,000= 70%.

This ratio is also referred to as a plowback ratio.


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