• Retention ratio is the portion of profits retained by the firm to grow the business, rather than being paid out as dividends to shareholders.
  • The payout ratio is the opposite of the retention ratio, which measures the percentage of profits paid out as dividends to shareholders.
  • After the payment of dividends, the remaining part of the profit is called retained earnings.
  • The retention rate helps investors determine how much money a company leaves to reinvest in the company’s operations.
  • Growing companies tend to have high retention rates as they invest profits back into the company for rapid growth.