Retention Rate

Posted in Finance, Accounting and Economics Terms, Total Reads: 868
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Definition: Retention Rate

Retention rate tells us how much of the net income (after tax income) is retained by the company after paying the dividends. In other words, it is the percentage of the net income which is not paid out as dividends.

It can be calculated as:

Retention Rate =  Net Income – Dividends

                                          Net Income

                             = 1 – Dividend Payout Ratio

Example:

For the year 2012, company A is having net income of Rs 100. It declares that it will pay dividend of Rs. 10.

Retention rate of company A = (100 – 10) /100

                                         =  90 %

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