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# How to Calculate Your Company’s Retention Rate

The retention ratio measures the percentage of earnings that are not paid out as dividends. These earnings are credited to the retained earnings account. This ratio is the opposite of the dividend payout ratio. In other words, the higher the retention ratio, the better. In this article, we’ll discuss retention rates and their importance to your company. You’ll learn the most important tips for analyzing your company’s retention rate. It’s easy to calculate your company’s retention rate using these simple calculators.

## Profit retention ratio

Many investors use the profit retention ratio to forecast a company’s future. Companies with high retention rates are usually those in fast-growing industries. They will keep as much profit as possible in order to invest it back into the business. Conversely, more mature blue-chip companies will likely distribute a lot of dividends to their shareholders as they believe their future growth is limited. Hence, understanding the company and its industry is important before making your investment decisions.

## Plowback ratio

The plowback ratio is a key indicator of a company’s profitability. In the case of established companies, a high plowback ratio means the company is still profitable and confident of its future. However, it’s important to note that a low plowback ratio can also be a sign of a company that’s at risk of disruption and has a high number of competitors. This is because companies that have high plowback ratios are typically capital-intensive and must continually invest in their operations to keep their output at a high level.

## Dividend payout ratio

The dividend payout and retention ratio are a two-part metric that compare the profitability of a company with its shareholders. Dividend payout ratio is the percentage of net income paid out as dividends, while dividend retention ratio is the amount of profits retained by the company for future use. A company with a high payout ratio means that it is likely to pay large dividends to its shareholders, while one with a low payout ratio means that it is not profitable enough to keep the profits to pay dividends.

## Growth rate

A company’s growth rate is an important factor in determining its retention ratio. Increasing revenue and profitability can make a company’s retention rate higher than other companies. However, a low growth rate can be harmful for investors. They should look for companies that retain as much profit as possible. Companies with low growth rates should seek companies that reinvest their earnings. However, this may not always be the case. Some companies may have a high growth rate but still have a low retention ratio.

## Measurement period

Retention rate can be calculated with both short-term and long-term timeframes. Short-term retention rate measures changes over a few months or quarters, while long-term measures are calculated over the whole year. Long-term retention rates can reveal how changes on a large scale affect a particular employee group. Therefore, it is important to calculate both short-term and long-term retention rates. Here are some tips to calculate retention rate: