How to calculate plowback ratio?
Understand the Problem
The question is asking for the method or formula to calculate the plowback ratio, which is a financial metric used to evaluate the proportion of earnings that a company retains for reinvestment rather than distributing it as dividends.
Answer
(Net Income - Dividends) / Net Income
The final answer is (Net Income - Dividends) / Net Income
Answer for screen readers
The final answer is (Net Income - Dividends) / Net Income
More Information
The plowback ratio is useful for investors to understand how much profit the company is reinvesting into its business rather than paying out as dividends.
Tips
A common mistake is to forget to subtract preferred dividends from net income when calculating the ratio.
Sources
- Plowback Ratio Calculator - eFinanceManagement - efinancemanagement.com
- Retention Ratio - Overview, Formula, Example - corporatefinanceinstitute.com
- Plowback Ratio - Wall Street Prep - wallstreetprep.com
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