Retention ratio: A company paid out $163,961.60 as dividends on profit of $298,112. What is the company's retention ratio?

Question

Quizplus · Accepted Answer

Retention ratio is the percentage of profit that is not paid out as dividends. Therefore, the retention ratio can be calculated as (1 - Dividend payout ratio).

Dividend payout ratio = Dividends/Profit 
Dividend payout ratio = 163,961.60/298,112 = 0.55

Retention ratio = 1 - Dividend payout ratio = 1 - 0.55 = 0.45 or 45%

Therefore, the answer is choice B, 45%.

Retention Ratio: a Company Paid Out $163,961