earnings retention ratio
Earnings retention ratio
Earnings Retention Ratio
The percentage of a publicly-traded company's post-tax earnings that are not paid in dividends. Most earnings retained are re-invested into the company's operations. Tracking year-on-year earnings retention ratios is important to fundamental analysis to investigate whether a company is increasing or decreasing its rate of re-investment. The earnings retentions ratio is calculated thusly:
Earnings retention ratio = (Net income - dividends) / Net income
For example, a company with a net income of $10 million that pays out $3.5 million in dividends has an earnings retention ratio of (10 million - 3.5 million) / 10 million = 65%. It is also called simply the retention ratio.
Earnings retention ratio = (Net income - dividends) / Net income
For example, a company with a net income of $10 million that pays out $3.5 million in dividends has an earnings retention ratio of (10 million - 3.5 million) / 10 million = 65%. It is also called simply the retention ratio.
earnings retention ratio
See retention rate.