The plowback ratio, also known as the retention ratio, indicates the percentage of net income that is retained in the company for reinvestment in future growth, rather than being paid out as dividends.

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The Plowback Ratio

Question 301

Multiple Choice

The plowback ratio:

A) Is equal to net income divided by the change in total equity.
B) Shows the percentage of net income available to the firm for future growth.
C) Plus the retention ratio must equal 100 percent.
D) Is equal to the change in retained earnings divided by the dividends paid.
E) Represents the earnings returned to the shareholders.

Correct Answer: