Which one of the following correctly defines the retention ratio?
A) one plus the dividend payout ratio
B) additions to retained earnings divided by net income
C) additions to retained earnings divided by dividends paid
D) net income minus additions to retained earnings
E) net income minus cash dividends

Question

Quizplus · Accepted Answer

The retention ratio is defined as the portion of net income that is retained in the business rather than paid out to shareholders as dividends. It is calculated by dividing the additions to retained earnings by the net income. This ratio indicates how much of the company's profit is being reinvested in the business.

Which One of the Following Correctly Defines the Retention Ratio