How this calculator works
Find the share of positive period earnings retained after common dividends. Use common earnings and common dividends from the same period. Multiply the resulting ratio by net income to obtain the addition to retained earnings from that period, before other equity adjustments. Dividends above earnings produce negative retention.
Formula
Retention = (net income - dividends) / net income = 1 - payout ratio. Earnings retained = income - dividends.
Worked example
$100,000 income and $30,000 dividends imply 70% retention and $70,000 retained. Paying $120,000 out of $100,000 earnings implies -20% retention.
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Frequently asked questions
Is this the retained earnings balance?
No. It describes one period. The balance sheet retained earnings account includes accumulated results from earlier periods.
Why require positive income?
At zero earnings the ratio is undefined. During losses, a payout or retention percentage is usually difficult to interpret.
Can retention exceed 100%?
With nonnegative common dividends and positive income it cannot exceed 100%. Negative retention is possible when dividends exceed earnings.