Plowback or Plowback Ratio

Plowback refers to a company reinvesting its profits back into the company to finance growth as opposed to distributing its profit as dividends or bonuses. Evaluating a company's plowback ratio is an important part of the due diligence process that potential buyers of a company must include in their evaluation of any business. The ratio is 100% for corporations that do not pay dividends and is zero for companies that payout their entire net income as dividends. Companies that want to grow, often have plowback ratios that are very high.

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