Earnings Retention Ratio Calculator
The retention ratio, or plowback ratio, is the portion of net income a company keeps to reinvest rather than distribute as dividends. It equals retained earnings divided by net income, and it is the complement of the dividend payout ratio: the two always add to 100 percent. This calculator computes both from net income and dividends paid. The retention ratio is a building block of the sustainable growth rate, the pace a company can grow from internal funds. Enter net income and total dividends for the same period.
Retention ratio formula
Retained earnings = net income - dividends paid
Retention ratio = retained earnings / net income
Payout ratio = dividends paid / net income
Retention ratio + payout ratio = 100%
The retention ratio and payout ratio are complements. Multiplying the retention ratio by return on equity gives the sustainable growth rate.
Retention ratio context
- Retained earnings fund growth without issuing new shares or debt.
- Growth companies typically retain more; mature companies pay out more.
- Retention ratio times return on equity is the sustainable growth rate.
- A payout ratio above 100 percent means dividends exceed earnings.
- Compare retention with reinvestment opportunities and capital needs.
Retention ratio: frequently asked questions
What is the retention ratio?
The retention ratio, also called the plowback ratio, is the share of net income a company keeps rather than paying out as dividends. It equals retained earnings divided by net income, or one minus the dividend payout ratio.
How is the retention ratio calculated?
Subtract dividends paid from net income to get retained earnings, then divide by net income. Equivalently, retention ratio equals 1 minus (dividends divided by net income). A company that earns 1,000,000 and pays 300,000 in dividends retains 700,000, a 70 percent retention ratio.
What is the dividend payout ratio?
The dividend payout ratio is dividends paid divided by net income. It is the complement of the retention ratio, so the two always add to 100 percent. If a company pays out 30 percent of earnings, it retains 70 percent.
Why does the retention ratio matter?
Retained earnings fund growth, debt repayment, and reinvestment without raising new capital. The retention ratio, multiplied by the return on equity, gives the sustainable growth rate, which is the pace a company can grow using internal funds alone.
Can the retention ratio be negative?
Yes. If dividends paid exceed net income, retained earnings are negative, so the retention ratio is negative and the payout ratio is above 100 percent. This can happen in a weak year and is not always sustainable.
Official sources
- U.S. Securities and Exchange Commission: Investor.gov.
- U.S. Securities and Exchange Commission: SEC.gov.
Reviewed by the CalculatorHub team, edited by James Graham, 17 June 2026. See our methodology.