How to Calculate a Plowback Ratio

by Shreya Mehta; Updated September 26, 2017

The plowback ratio, also known as the retention rate, represents the percentage of earnings that have not been paid out as dividends to shareholders. These funds might be reinvested into the business, reserved for large purchases or used to pay off liabilities. A high plowback ratio may be good if the company is growing. A lower ratio indicates the company is giving back to the investors by paying out more dividends. The plowback ratio can be calculated by subtracting the dividend payout ratio from 100.

Identify the dividend per equity share and earnings per share. Assume, for example, the dividend per equity share is quoted as 0.32 and earnings per share is 3.10.

Divide the dividend per equity share by the earnings per share. Multiply by 100 to get a percentage: 0.32/3.10 x 100 = 10.32. This is the dividend payout ratio.

Subtract the dividend payout ratio from 100 to get the plowback ratio: 100 - 10.32 = 89.68.

About the Author

Shreya Mehta graduated from the University of Massachusetts with a Bachelors degree in business administration with a double concentration in finance and MIS. She attended Bentley College to obtain a MBA in finance and Masters in IT. She has been working for a financial software company for the past three years as an associate content manager.

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