Retention Ratio Calculator (plowback ratio = 1 − dividend payout ratio)

Understanding the retention ratio calculator — concept and principle

The retention ratio, also called the plowback ratio, is the share of a company's net income kept in the business instead of paid out as dividends. This calculator finds the retention and payout ratios, the earnings retained, a version that also counts buybacks, and the growth rate those retained earnings could support.

Keeping 70% of earnings and earning 15% on equity lets the company grow about 10.5% a year without new shares.

How it is calculated

Retention ratio b = (net income − dividends) ÷ net income = 1 − payout ratio.
Payout ratio = dividends ÷ net income.
Retention after buybacks = (net income − dividends − buybacks) ÷ net income.
Implied sustainable growth = b × ROE.
Per-share figures give the same result: (EPS − DPS) ÷ EPS.

The principle

Profit can be returned to shareholders or reinvested. Reinvested earnings add to equity and fund new assets. If the company earns its ROE on that new equity and keeps its leverage unchanged, earnings and equity grow at b × ROE, the sustainable growth rate. Buybacks also return cash, so a company that pays small dividends but large buybacks is not really retaining much.

Worked example

Default inputs: net income 8,000,000 USD, dividends 2,400,000 USD, no buybacks, ROE 15%.

Payout ratio = 2,400,000 ÷ 8,000,000 = 30%.
Retention ratio = 1 − 0.30 = 70%; earnings retained = 5,600,000 USD.
Retention after buybacks = 70% (no buybacks).
Implied sustainable growth = 0.70 × 15% = 10.5%.
Reading: the company keeps part of its earnings.

Each point is the calculator re-run with only “Net income to common shareholders” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Net income to common shareholders	Retention ratio
2e+06	-20%
4e+06	40%
6e+06	60%
8e+06	70%
1e+07	76%
1.2e+07	80%
1.6e+07	85%

How to read the result

High retention suits companies with good reinvestment opportunities, typically growing firms. Mature companies with fewer opportunities often pay out more. A negative ratio means dividends exceed earnings, which cannot last without using reserves or borrowing. Retention only creates value if reinvested earnings earn more than the cost of equity.

Common mistakes

Ignoring buybacks when judging how much is retained.
Using net income that includes large one-off items.
Confusing this ratio with the Korean accounting term 유보율 (retained earnings ÷ paid-in capital).
Assuming high retention always means high growth.

Keep in mind: The ratio describes one period and depends on accounting profits. Use it with other measures; this is not investment advice.

Frequently asked questions

What is a good retention ratio?

It depends on the company's growth opportunities and stage; there is no single target.

How is the retention ratio related to growth?

Sustainable growth = retention ratio × ROE, assuming constant leverage and returns.

What is the difference between retention ratio and payout ratio?

They add up to 100%: one is the share kept, the other the share paid out as dividends.

Sources: Brealey, Myers & Allen, Principles of Corporate Finance (plowback ratio and growth) · Bodie, Kane & Marcus, Investments (dividend discount models)

Checked 9 Nov 2026. CFA Institute, “CFA Program Level II Financial Ratio List”: retention rate = (net income attributable to common shares − common share dividends) ÷ net income attributable to common shares = 1 − payout ratio; sustainable growth rate = retention rate × ROE.

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