What is the plowback ratio?

Also known as the ratio of retention level or revenue, the ratio of plawback is a type of measurement that focuses on earnings that remain after dividends have been set aside for investors distribution. Since the ratio is focused on what remains after the dividend is paid, it helps companies to find out how many of these earnings can be invested or go back into growth projects related to society. Owners of enterprises will look at this type of retention ratio as a means of measuring the success of the efforts to produce the income of the company as well as the effectiveness of reducing waste in the production process.

Companies owners want a higher plowback ratio for several reasons. One of the more important indications of a higher ratio is that the company works efficiently, with a minimum of waste in terms of the use of raw materials or labor productivity. At the same time, this higher ratio means that the company is able to retave more earnings generated by sales and various investments effectively inThey hook more money to be assigned to growth projects such as the construction of new equipment or launching a new product. Given that more money from earnings remains control of society, it is necessary to borrow to finance this effort, which in turn allows business to expand without receiving another debt.

The actual calculation of the Plowback ratio includes identification of the amount of dividends paid from each shares, as well as the amount of earnings generated by the share. These numbers are usually referred to as dividend on the share, and profit per share. In order to arrive at the plow ratio, the dividend is divided by an earnings for accinsiders. The paycheck payout is then deducted from 100, with the result the ratio of the plowback.

The ratio of the lower plow does not necessarily mean that the company has financial problems. This number may indicate that most of the generated income will pay dividends to investors,Which can be fine if society prefers to grow at a slower pace. If business goals are related to rapid expansion, this lower ratio may mean that changes must be made in order to increase the amount of income that is left after recognition of liabilities to investors, either by increasing sales or reducing operating costs. In any case, determining the Plowback ratio provides a feeling of how well the business is doing in terms of maintaining sufficient earnings to increase the financial stability of the company or for generating resources that are suitable for expansion.