Plowback Ratio

AAA

DEFINITION of 'Plowback Ratio'

A fundamental analysis ratio that measures the amount of earnings retained after dividends have been paid out. This is the opposite of the payout ratio, which measures the amount of dividends that are paid out as a percentage of earnings. Also known as "retention rate", "retention ratio" or the "earnings retention ratio".

INVESTOPEDIA EXPLAINS 'Plowback Ratio'

The idea behind the desirability of a higher ratio is that the more earnings a company retains, the more growth it can foster. However, the appropriateness of a ratio depends on the type of company. The faster a company is growing, the more desirable it would be to have a higher plowback ratio. With a slow-growing company, an investor would prefer a large payout ratio.

RELATED TERMS
  1. Fundamental Analysis

    A method of evaluating a security that entails attempting to ...
  2. Organic Growth

    The growth rate that a company can achieve by increasing output ...
  3. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  4. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  5. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  6. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
Related Articles
  1. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  2. How And Why Do Companies Pay Dividends?
    Investing Basics

    How And Why Do Companies Pay Dividends?

  3. What is the incentive to buy a stock ...
    Options & Futures

    What is the incentive to buy a stock ...

  4. The Big Credit Card Companies Have Room ...
    Stock Analysis

    The Big Credit Card Companies Have Room ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center