Home Interiors has net income of $258,000. The firm has decided to pay $140,000 of that income out to the shareholders. What is the firm's retention ratio?

Question

Quizplus · Accepted Answer

Retention ratio is calculated as Retained Earnings/Net Income. Since the firm paid out $140,000 to shareholders, the retained earnings would be $258,000 - $140,000 = $118,000. Therefore, Retention ratio = $118,000/$258,000 = 0.457 or 45.7% (rounded to nearest hundredth). The closest answer choice is C).

Home Interiors Has Net Income of $258,000