The part of net earnings that the company holds back with itself after distributing dividends to the shareholders is termed as retained earnings. And the plow back ratio is a metric to indicate this portion kept with the company. It is also known as the retention ratio. The plow back ratio calculator helps in a quick calculation of the same. The plow back ratio is in complete contrast to the payout ratio. The payout ratio determines the dividends paid out of the net income, and the left-out portion is therefore retained by the company.
The Formula to calculate the plow back ratio is as follows:
Plow back Ratio = (Net Income – Dividends) / Net Income
This difference of net income and dividend is the retention made by the company.
As said above, the plow back ratio is in complete contrast to the payout ratio; we can also calculate the plow back ratio by the following formula:
Plow back Ratio = 1 – Payout Ratio
The payout ratio is nothing but the dividend paid out per share from the earnings made per share. Therefore, we can also write the above formula as:
Plow back Ratio = 1 – (Dividend per Share / Earnings per Share)
Plow Back Ratio Calculator
How to Calculate Using Plowback Ratio Calculator?
The following particulars are to be entered into the plow back ratio calculator.
Net Income – Net income refers to the actual earnings of the company after allowing for business expenditures and taxes. A positive income determines that the income of the company is more than its expenditures or vice versa.
The formula for calculating it is:
Net Income = Gross Income – Business Expenditures
To know more about net income, you can refer to our article – Net Income
Dividend – Part of the net income paid to shareholders for their investment in the company is dividends.
