The
retention rate, also known as reinvestment index refers to the amount of earnings that a company keeps after paying dividends. The retention rate varies between different types of companies. Development companies have a higher retention rate because they maintain higher profits to reinvest in the business to grow. Many mature companies tend to have lower retention rates because they have many opportunities for expansion.
Instructions
- Check dividends paid per common share and earnings per share.
- Subtract dividends paid per share to earnings per share to find retained earnings per share. For example, if a company had earnings of $ 5 a share and paid a dividend of $ 2 a share, you must subtract $ 2 $ 5 $ 3 for retained earnings per share.
- Divide retained earnings per share by earnings per share to calculate the retention rate. In this example, divide $ 3 for $ 5 for 0.6 or 60%, which is the retention rate of the company.