Retention Ratio (Plowback Ratio)

Definition of Retention Ratio (Plowback Ratio)

Definition: What is Retention Ratio (Plowback Ratio)?

The retention ratio is also called the Plowback ratio. It is the financial ratio that measures the earnings amount or profit amount which added to retained earnings at the end of the year.

In other words Detention rate withheld by the company and not distributed as a dividend at the end of the year.

Retention Ratio (Plowback Ratio)

This measurement shows, how much company reinvests in its operation so it is a very important measurement. If the company has not a steady investment rate then the company totally dependent on the financing from investors and creditors.

The retention ratio is the opposite ratio of the dividend payout ratio. Retention ratio shows how much money company chooses to keep in its bank account whereas dividend payout shows how much money the company chooses to pay its shareholders.

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