The sum of the payout ratio and the plowback ratio will always equal 1.0.

Question

Quizplus · Accepted Answer

This statement is true. The payout ratio is the percentage of earnings that is paid out as dividends to shareholders, while the plowback ratio (also known as the retention ratio) is the percentage of earnings that is retained by the company for reinvestment in the business. Therefore, the sum of these two ratios should represent the entire earnings, which is equal to 1.0 or 100%.

The Sum of the Payout Ratio and the Plowback Ratio