what does the plowback ratio tell you 
the plowback ratio is an indicator of how much profit is retained in a business rather than paid out to investors younger businesses tend to have higher plowback ratios these faster growing companies are more focused on business development more mature businesses are not as reliant on reinvesting profit to expand operations the ratio is 100 for companies that do not pay dividends and is zero for companies that pay out their entire net income as dividends use of the plowback ratio is most useful when comparing companies within the same industry different markets require different utilization of profits for example it is not uncommon for technology companies to have a plowback ratio of 1 that is 100 this indicates that no dividends are issued and all profits are retained for business growth the plowback ratio represents the portion of retained earnings that could potentially be dividends higher retention ratios indicate management s belief of high growth periods and favorable business economic conditions lower plowback ratio computations indicate a wariness in future business growth opportunities or satisfaction in current cash holdings the plowback ratio is a useful metric for determining what companies invest in investors preferring cash distributions avoid companies with high plowback ratios however companies with higher plowback ratios could have a greater chance of capital gains achieved through appreciated stock prices during the growth of the organization investors see stable plowback ratio calculations as indicators of current stable decision making that can help shape future expectations the ratio is typically higher for growth companies that are experiencing rapid increases in revenues and profits a growth company would prefer to plow earnings back into its business if it believes that it can reward its shareholders by increasing revenues and profits at a faster pace than shareholders could achieve by investing their dividend receipts because management determines the dollar amount of dividends to issue management directly impacts the plowback ratio alternatively the calculation of the plowback ratio requires the use of eps which is influenced by a company s choice of accounting method therefore the plowback ratio is highly influenced by only a few variables within the organization example of the plowback ratiofor example on nov 29 2017 the walt disney company declared a 0 84 semi annual cash dividend per share to shareholders of record dec 11 to be paid jan 11 1 as of the fiscal year ended sept 30 2017 the company s eps was 5 73 2 its plowback retention ratio is therefore 1 0 84 5 73 0 8534 or 85 34 the retention ratio is a converse concept to the dividend payout ratio the dividend payout ratio evaluates the percentage of profits earned that a company pays out to its shareholders it is calculated simply as dividends per share divided by earnings per share eps using the disney example above the payout ratio is 0 84 5 73 14 66 this is intuitive as you know that a company keeps any money that it doesn t pay out of its total net income of 8 98 billion disney will pay out 14 66 and retain 85 34 3 