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Plowback Ratio - Explained

What is a Plowback Ratio?

Written by Jason Gordon

Updated at April 7th, 2022

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Table of Contents

What is a Plowback Ratio?How is a Plowback Ratio Used?Academic Research on Plowback Ratio

What is a Plowback Ratio?

The plowback ratio is a simple metric showing the ratio of earnings retained by the company (i.e., not paid out as a dividend) to the total earnings. 

The formula is as follows: 

Plowback Ratio = 1 - Payout Ratio (Earnings Per Share / Dividends Per Share) 

For example, a company earns $10 per share. It then declares a $6 per share dividend. The dividend payout ratio is 60% and a plowback ratio is 40%.

Back to: Accounting & Taxation

How is a Plowback Ratio Used?

Growth-based companies generally do not pay a dividend. That is, the companies seek to achieve growth with any revenue. Thus, the revenue is allocated to growth efforts. In this case the plowback ratio is 100%. Investors purchase stock in these companies under the expectation that the value of the stock will rise - rather than expecting a dividend return. The stock rises under the assumption that increased growth means the company will eventually be in a position to pay a dividend that is representative of its eventual size.


Related Topics

  • Trend Analysis of Financial Statements
  • Common-Size Analysis (Vertical Analysis) of Financial Statements
  • Common-Size Financial Statement
  • Net Dollar Retention
  • Horizontal Analysis
  • Per Share Basis
  • Profitability Ratios
  • Gross Margin Ratio
  • Profit Margin
  • After Tax Profit Margin
  • Return on Assets
  • Total Shareholder Return
  • Cash on Cash Return
  • Earnings Per Share
  • Diluted Earnings Per Share
  • Asset Turnover Ratio
  • Berry Ratio
  • Break-Even Analysis
  • Liquidity Ratio
  • Current ratio  (Working Capital Ratio)
  • Working Ratio
  • Quick Ratio
  • Quick Assets
  • Days Sales Outstanding
  • Cash Ratio (Operating Cash Flow Ratio)
  • Receivables turnover ratio (often converted to average collection period)
  • Accounts Payable Turnover Ratio
  • Inventory turnover ratio (often converted to average sale period)
  • Solvency (Coverage Ratios)
  • Leverage Ratio (Debt Ratio)
  • Asset Coverage Ratio
  • Debt to Equity
  • Debt to Income Ratio
  • Debt Coverage Ratio
  • Times Interest Earned
  • Market Capitalization
  • Price to Equity Ratio
  • Book-To-Market Ratio
  • Price to Earnings Ratio
  • Price to Earnings Growth (PEG) Ratio
  • Price to Earnings Growth Payback Ratio
  • CAPE Ratio
  • Price to Cash Flow Ratio
  • Capital Maintenance
  • Book to Bill Ratio
  • Asset Turnover Ratio
  • Plowback Ratio 
  • Days Inventory Outstanding
  • Days Payable Outstanding
  • Days Sales Outstanding
  • Non-financial Performance Measures: The Balance Scorecard
plowback ratio plowback

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