The correct answer is: C. retention ratio
The retention ratio is the proportion of earnings that a company retains, rather than paying out as dividends. It is calculated by subtracting the payout ratio from one. The payout ratio is the proportion of earnings that a company pays out as dividends.
The retention ratio is an important metric for investors to consider, as it indicates how much a company is reinvesting in its business. A high retention ratio suggests that a company is confident in its future prospects and is willing to invest in its growth. A low retention ratio suggests that a company is more focused on returning capital to shareholders.
The retention ratio is also used in the dividend growth model, which is a model that is used to estimate the future value of a dividend stream. The dividend growth model assumes that the company’s dividend will grow at a constant rate in the future. The retention ratio is used to calculate the company’s earnings growth rate, which is then used to calculate the future value of the dividend stream.
The retention ratio is a useful metric for investors to consider, as it provides information about a company’s investment strategy and its future prospects.