Retention Ratio Calculator

Formula

The formula to calculate the Retention Ratio (RR) is:

\[ RR = \frac{(NI - D)}{NI} \]

Where:

$ RR $ is the retention ratio.
$ NI $ is the net income.
$ D $ is the dividends.

What is Retention Ratio?

A retention ratio refers to the proportion of a company’s earnings that are retained and reinvested into the business rather than being paid out as dividends to shareholders. This ratio provides insight into how much of the profits a company generates are being plowed back into the business for growth and expansion.

Example Calculation

Consider an example where:

Net Income (NI): $100,000
Dividends (D): $20,000

Using the formula to calculate the Retention Ratio:

\[ RR = \frac{(100,000 - 20,000)}{100,000} = 0.8 \text{ or } 80\% \]

This means that the retention ratio for this example is 80%.