Retention rate
Retention Rate is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years. Also called earnings retention ratio, plowback ratio. It's often expressed as a percentage.
Retention rate is calculated as: (Net Income - Divdends)/Net Income
For those of you who dont know what divdends are, dividends is the money a business earns paid to shareholders.
Category: Financial ratios
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