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# How to Calculate the Retention Ratio

Retention ratio is the inverse of dividend payout ratio. It measures the amount of profit that a company keeps rather than paying dividends. The Retention ratio is a good way to evaluate the rationality of a company’s management. The ratio is also helpful when comparing companies of similar scale. The inverse of dividend payout ratio, Retention ratio provides useful insights into a company’s operations and business decisions. But how do you calculate the retention ratio?

## Retention ratio is inverse of dividend payout ratio

Retention ratio indicates the percentage of earnings retained by a company for operations. It is calculated by subtracting Net Income from Dividends Paid. Retention ratio is the inverse of dividend payout ratio. If a company has a high retention ratio, it means that it retains most of its earnings and does not distribute them to shareholders. It is a useful measure for predicting a company’s future growth.

## It measures company’s reinvestment of profits

The retention ratio is a commonly used measure of a company’s reinvestment of profits. This metric is the proportion of retained earnings that a company keeps after dividend payments are made. By comparing these numbers to the overall ratio, investors can get an idea of how much money a company retains and reinvests. High retention ratios are a good sign for growing companies, which are likely to invest earnings back into the company in order to increase its growth rate.

## It is a good indicator of management’s rationality

The legal performance of organisations is largely determined by managerial devices. This paper explores the managerial rationality that underlies global legal indicators. It argues that indicators are part of a system of distributed governance and management control that is steadily eroding state-centred authority. The legitimacy of indicators is based on four processes: production, disclosure, re-examination, and accountability. The latter two processes can provide the basis for generating accountability and stimulus to action.

## It can be used to compare company’s prospects

A key part of a sales process is the tracking of prospects. Prospect tracking is a systematic way to compare companies based on their prospects. The information gathered from prospect tracking is valuable in determining a company’s future potential. Here are three important ratios that are useful for comparing company prospects. They include: dividend yield, earnings per share (EPS), and price-to-earnings ratio.