Plowback Ratio

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".

BREAKING DOWN '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.

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