Northwood, Inc., has revenue of $455,316, costs of $316,487, and a tax rate of 31 percent. If the firm pays out 45 percent of its earnings as dividends every year, how much earnings are retained and what is the firm's retention ratio?
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Profits may also be invested back into the business for purposes of expansion and isn't distributed to shareholders are known as retained profits.The retention ratio aids investors in determining how much cash a company is holding back to reinvest in its operations. Earnings growth may be negatively impacted if a corporation distributes all of its retained earnings as dividends or does not reinvest them in the company. Also, a business that isn't successfully using its retained earnings is more likely to finance expansion by increasing its debt load or issuing new stock shares.
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