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## Retention Ratio

The retention ratio, sometimes referred to as the plowback ratio, is the amount of retained earnings relative to earnings. Earnings can be referred to as net income and is found on the income statement. Retained earnings is shown in the numerator of the formula as net income minus dividends.

The retention ratio formula is an important component to other financial formulas, particularly growth formulas. The retention ratio formula looks at how much is kept by the company, as opposed to being paid out to common stock shareholders. Whatever amount the company retains, will be reinvested for growth in the company. A company's retained earnings could be considered an opportunity cost of paying dividends for stockholders to invest elsewhere.

## $\frac{i-d}{i}$

Here,i=net income,d=dividends

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