What does the retention ratio measure?
A)Contribution margin minus fixed costs
B)The percentage of net earnings not paid out in dividends
C)Earnings before tax minus taxes
D)Cash from operations minus cash from investing

Question

Quizplus · Accepted Answer

The retention ratio measures the percentage of net earnings that a company chooses to retain or reinvest in the business instead of paying out as dividends to shareholders. It is calculated as (Net Income - Dividends) / Net Income. Therefore, option B, which states "The percentage of net earnings not paid out in dividends," is the correct answer.

What Does the Retention Ratio Measure