Enter the dividends per share ($) and the earnings per share ($) into the Plowback Ratio Calculator. The calculator will evaluate and display the Plowback Ratio. 

Plowback Ratio Formula

The following formula is used to calculate the Plowback Ratio. 

PLBR = 1 - (DPS/EPS)
  • Where PLBR is the Plowback Ratio
  • DPS is the dividends per share ($) 
  • EPS is the earnings per share ($) 

To calculate the blowback ratio, subtract the result of the dividends per share divided by the earnings per share from a value of 1.

How to Calculate Plowback Ratio?

The following example problems outline how to calculate Plowback Ratio.

Example Problem #1:

  1. First, determine the dividends per share ($).
    • The dividends per share ($) is given as: 37.
  2. Next, determine the earnings per share ($).
    • The earnings per share ($) is provided as: 80.
  3. Finally, calculate the Plowback Ratio using the equation above: 

PLBR = 1 – (DPS/EPS)

The values given above are inserted into the equation below and the solution is calculated:

PLBR = 1 – (37/80) = .5375

FAQ

What is the significance of the Plowback Ratio in financial analysis?
The Plowback Ratio is significant in financial analysis as it indicates the proportion of earnings a company retains and reinvests in its operations, as opposed to distributing as dividends to shareholders. A higher Plowback Ratio suggests a company is reinvesting more into its growth, which can be particularly appealing for investors looking for long-term growth opportunities.

How can changes in the Plowback Ratio affect a company’s stock price?
Changes in the Plowback Ratio can significantly affect a company’s stock price. An increasing Plowback Ratio may signal to investors that the company is focusing on growth and reinvestment, potentially leading to an increase in stock price due to anticipated future gains. Conversely, a decreasing Plowback Ratio might indicate higher dividend payouts, which could attract a different set of investors seeking immediate returns rather than long-term growth.

Are there any limitations to using the Plowback Ratio for investment decisions?
Yes, there are limitations to using the Plowback Ratio for investment decisions. While a high Plowback Ratio indicates reinvestment in the company, it does not necessarily guarantee successful growth or profitability. The effectiveness of the reinvested earnings is crucial. Additionally, the Plowback Ratio does not consider the company’s debt, market conditions, or the efficiency of its investments. Therefore, it should be used in conjunction with other financial metrics and qualitative factors for a comprehensive analysis.