The share of profit a company keeps and reinvests instead of paying out as dividends.
Adds the sustainable growth rate = ROE × retention ratio.
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Estimates for planning only; not financial, tax or investment advice. See our Disclaimer.
Every dollar of profit a company earns is either paid to shareholders or kept in the business. The retention ratio — also called the plowback ratio — is the share that is kept: (net income − dividends) ÷ net income. It is the mirror image of the dividend payout ratio, and it is one of the two inputs to a company's sustainable growth rate: the pace at which it can grow from its own earnings without issuing shares or changing its leverage. Enter net income and total dividends paid for the same period, and optionally the return on equity; the calculator returns the retention ratio, the payout ratio, the dollars retained and the sustainable growth rate. The guide below shows how to do the same from per-share figures, how retention feeds growth, and why share buybacks make a high retention ratio look more conservative than it is.
Enter net income from the income statement.
Enter total dividends paid in the same period (0 if none).
Optionally add the return on equity to see the sustainable growth rate, then press Calculate.
By O.E. — Partner, chairman of the board and CEO of a metal products manufacturer for 21 years; the company exports to 45 countries.
Drafted with AI assistance; calculations checked against primary sources and tested with the site's own code. About FlowUtil
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Retention ratio (b) = (net income − dividends) ÷ net income = 1 − payout ratio. With per-share figures: 1 − DPS ÷ EPS — 1 − 1.30 ÷ 5.20 = 75%. The sustainable growth rate multiplies it by the return on equity: 15% × 0.75 = 11.25%.
| Symbol | Meaning |
|---|---|
| b | Retention (plowback) ratio |
| Payout | Dividends ÷ Net income = 1 − b |
| SGR | ROE × b — growth fundable from retained earnings at constant leverage |
1$2M profit, $500,000 dividends, 15% ROE.
1.5 ÷ 2.0; 15% × 0.75
Retention 75.00% · payout 25.00% · sustainable growth 11.25%
A reinvesting company.
2$5M profit, no dividend.
5 ÷ 5
Retention 100.00%
Typical of young or fast-growing companies; whether that is good for shareholders depends on the return earned on the money kept.
3$1M profit, $1.2M dividends.
−0.2 ÷ 1.0
Retention −20.00% · payout 120.00%
The dividend is funded from cash, borrowing or profits kept in earlier years. Common in a bad year for companies that try not to cut their dividend; unsustainable if it lasts.
If a company earns 15% on its equity and keeps 75% of its profit, its equity base grows by 11.25% a year; if the return on new investment stays at 15%, earnings — and, with a constant payout ratio, dividends — can grow at the same rate without new shares or extra debt. Two things make the figure fragile: the ROE on newly reinvested money is often lower than the historic ROE, and growth above the sustainable rate has to be funded by borrowing or issuing shares.
Aswath Damodaran's January 2026 data for US-listed companies:
| Sector | Dividends ÷ net income | Implied retention |
|---|---|---|
| All companies (5,994 firms) | 34.8% | 65.2% |
| Software | 21.0% | 79.0% |
| Utilities (general) | 65.4% | 34.6% |
| Tobacco | 87.6% | 12.4% |
| Food processing | 143.1% | −43.1% |
The textbook ratio counts only dividends. Across all US companies in the same dataset, dividends were 34.8% of net income, but dividends plus share buybacks were 83.2% — so the share of profit actually kept was about 17%, not 65%. To judge how much a company reinvests, add buybacks to dividends; to estimate dividend growth, the dividend-only ratio is the one that matters.