A financial ratio that relates retained earnings to profits as illustrated in the following:
Or also:
Retention ratio = 1- dividend payout ratio
For example, if a company has decided to distribute $30,0000 in cash dividends out of $100,000 it made in profits and keep the remaining amount for internal (organic) expansion, then:
Retention ratio = 70,000/ 100,000= 70%.
This ratio is also referred to as a plowback ratio.
