1. What is the Retention Ratio?

The Retention Ratio (also known as the plowback ratio) measures the percentage of earnings that are retained by the company rather than paid out as dividends. It indicates how much profit is being reinvested in the company's growth.

2. How Does the Calculator Work?

The calculator uses the retention ratio formula:

Where:

• \( DPS \) — Dividend Per Share (USD)
• \( EPS \) — Earnings Per Share (USD)

Explanation: The ratio is calculated by subtracting the dividend payout ratio (DPS/EPS) from 1. A higher retention ratio means the company is reinvesting more of its earnings back into the business.

3. Importance of Retention Ratio

Details: The retention ratio helps investors understand a company's growth strategy. Companies with high retention ratios are typically growth-oriented, while those with low ratios may be mature companies returning profits to shareholders.

4. Using the Calculator

Tips: Enter both DPS and EPS in USD. EPS must be greater than 0. The result will be displayed as a percentage (0-100%).

5. Frequently Asked Questions (FAQ)

Q1: What is a good retention ratio?
A: It depends on the company's growth stage. Growth companies may have ratios of 70-100%, while mature companies might have 0-30%.

Q2: Can the retention ratio be negative?
A: No, the ratio ranges from 0% to 100%. If DPS > EPS, it indicates the company is paying more in dividends than it earned.

Q3: How does retention ratio relate to dividend payout ratio?
A: They are complements - Retention Ratio = 1 - Dividend Payout Ratio.

Q4: Why would a company have a 100% retention ratio?
A: This means the company pays no dividends and reinvests all earnings, common in high-growth companies or startups.

Q5: How does retention ratio affect stock valuation?
A: Higher retention ratios may lead to higher future growth but require investors to be patient for returns.