Retention Ratio (Plowback Ratio) Calculator
The proportion of net income reinvested back into the business rather than paid as dividends.
Calculate Retention Ratio
Dividends ÷ Net Income × 100 (e.g. 24.70 for 24.70%)
Retention Ratio
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Not investment advice.
What is Retention Ratio?
The Retention Ratio (also called the Plowback Ratio) is the complement of the Payout Ratio — it measures the share of net income kept by the company for reinvestment rather than distributed as dividends. A retention ratio of 0.75 means 75% of earnings are reinvested. High retention ratios are typical of growth companies that need capital to fund expansion. Together with ROE, the retention ratio drives the Sustainable Growth Rate, making it a fundamental input in dividend discount models.
Formula
Retention Ratio = 1 − Payout Ratio
Worked Example
Worked example — Microsoft Corp. (MSFT)
FY2024
Step 1 Payout ratio (dividends ÷ net income): 24.70%
Step 2 Retention Ratio = 1 − 24.70% = 75.30%
Step 3 → Microsoft retains 75% of its earnings for share buybacks, R&D, acquisitions, and operations
Source: Microsoft 10-K FY2024 (2024-07-30)
How to Interpret Retention Ratio
< 25
Low retention — income-focused, most profits distributed
25 – 50
Balanced — moderate reinvestment and income distribution
50 – 80
High — growth-focused, significant capital reinvestment
> 80
Very High — nearly all earnings reinvested, minimal dividend
📚 Income Investing — Complete the path
- Dividend Yield
- FCF Yield
- Retention Ratio
- Sustainable Growth Rate
- PEG Ratio