Town Centre Market has sales of $311,800, a profit margin of 2.9 percent, and dividends of $4,500. What is the plowback ratio?

Question

Quizplus · Accepted Answer

The plowback ratio is equal to (1 - dividend payout ratio). The dividend payout ratio is equal to dividends divided by net income. We can calculate the net income as follows: 
Net income = Sales x Profit margin 
Net income = $311,800 x 0.029 = $9,042.20 
Dividend payout ratio = $4,500 / $9,042.20 = 0.4978 
Plowback ratio = 1 - 0.4978 = 0.5023 or 50.23%

Town Centre Market Has Sales of $311,800, a Profit Margin