Retention Ratio Calculator
Analysis Results
What Is the Retention Ratio?
The retention ratio shows the percentage of net income a company keeps after paying dividends.
In plain words:
It tells you how much profit stays inside the business.
Basic formula
Retention Ratio = (Net Income − Dividends) ÷ Net Income
If a company earns $100,000 and pays $40,000 in dividends:
- Retention ratio = 60%
- Dividend payout ratio = 40%
These two always add up to 100%.
Why the Retention Ratio Matters
The retention ratio gives insight into how a company uses its profits.
- High retention usually means the company wants to grow
- Low retention often means the company focuses on steady income for shareholders
- Negative retention can signal trouble or unsustainable payouts
It is widely used by:
- Long-term investors
- Equity analysts
- Finance students
- Business owners reviewing capital allocation
How the Retention Ratio Calculator Works
This calculator is built to be practical and beginner-friendly while still offering advanced insight.
Required inputs
- Net Income
Total profit after tax or earnings per share. - Dividends Declared
Total dividends paid to shareholders.
Optional input
- Return on Equity (ROE)
Used to estimate sustainable growth.
Outputs You Will See
Once you click Calculate Ratio, the tool shows several results.
1. Retention Ratio (Plowback Ratio)
This is the main output.
It shows the percentage of earnings kept in the business.
Example:
- 75% means the company reinvests most of its profits
- 25% means most profits are paid out
2. Dividend Payout Ratio
This is the opposite side of the same coin.
Dividend Payout Ratio = Dividends ÷ Net Income
It helps income-focused investors quickly assess yield behavior.
3. Sustainable Growth Rate (Optional)
If you enter ROE, the calculator also shows Sustainable Growth Rate (SGR).
SGR formula:
Sustainable Growth Rate = Retention Ratio × ROE
This estimates how fast a company can grow without taking on new debt.
Example:
- Retention ratio: 60%
- ROE: 15%
- SGR: 9%
This is a powerful insight for long-term valuation.
4. Company Profile Indicator
The calculator also classifies the company based on retention behavior:
- Aggressive Growth / Early Stage
Retention above 80% - Balanced (Growth + Income)
Retention between 40% and 80% - Mature / Income Focused
Retention below 40% - Unsustainable or Unstable
Negative earnings or over-distribution
This helps users interpret numbers without guessing.
How to Read the Results Correctly
Numbers alone do not tell the full story. Context matters.
High retention is good when:
- ROE is strong
- The company has profitable reinvestment opportunities
- The industry is still growing
Low retention is fine when:
- The business is mature
- Cash flows are stable
- Investors value dividends over growth
Red flags to watch:
- Dividends higher than net income
- Negative retention with declining profits
- High retention but poor ROE
Who Should Use a Retention Ratio Calculator?
This tool is useful for:
- Investors comparing growth vs income stocks
- Analysts modeling long-term growth
- Students learning corporate finance basics
- Business owners reviewing dividend policy
It works well alongside metrics like ROE, payout ratio, and earnings growth.
Common Mistakes to Avoid
- Judging retention ratio without ROE
- Comparing companies across very different industries
- Assuming high retention always means better performance
- Ignoring negative earnings signals
Always combine this metric with others.