Growth companies often retain all their earnings to reinvest; mature companies retain less and pay more dividends. Combined with ROE, the retention ratio estimates how fast a company can grow without new financing.
How to use the Retention Ratio Calculator
- Net income
- Dividends paid
- Return on equity (optional, for growth)
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter net income and the dividends paid.
Tips
- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.
Common mistakes to avoid
- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.
Inputs explained
| Field | What to enter |
|---|---|
| Net income | Amount in your currency |
| Dividends paid | Amount in your currency |
| Return on equity (optional, for growth) | In % |
What each result means
- Retained earnings = [Net income] – [Dividends paid]
- Retention ratio = ([Net income] – [Dividends paid])÷[Net income]×100
- Payout ratio = [Dividends paid]÷[Net income]×100
- Sustainable growth rate = [Return on equity (optional, for growth)]×[Retention ratio]÷100
Example values
How the main result changes when Net income changes and everything else stays at the example values above:
| Net income | Retention ratio (%) |
|---|---|
| 5,000,000 | 30 |
| 7,500,000 | 53.33 |
| 10,000,000 | 65 |
| 12,500,000 | 72 |
| 15,000,000 | 76.67 |
| 20,000,000 | 82.5 |
Formula
Retained earnings = net income − dividendsRetention ratio = retained earnings ÷ net income = 1 − payout ratioWorked example
Inputs — Net income: $10,000,000; Dividends paid: $3,500,000; Return on equity (optional, for growth): 14 %.
Results — Retained earnings = $6,500,000.00; Retention ratio = 65 %; Payout ratio = 35 %; Sustainable growth rate = 9.1 %.
Frequently asked questions
What is the retention ratio?
The share of profit kept in the business.
Is a high retention ratio good?
It's good if the company can reinvest at a high return.
How is it related to growth?
Sustainable growth = ROE × retention ratio.
What formula does the Retention Ratio Calculator use?
Retained earnings = net income − dividends.