Hornberger, Inc. recently paid a dividend of $2.00 per share. The next dividend is expected to be $2.05 per share. Hornberger has a return on equity of 11.00%. What percentage of its earnings does Hornberger plow back into the firm?

Hornberger plows back 22.72% of its earnings into the firm.

Explanation:

Plowback ratio fundamental analysis ratio that measures how much earnings are retained after dividends are paid out.

We can use the relationship g = ROE * b to find the plowback ratio (b).

The growth rate implied by the recent dividend and the expected dividend is estimated using the equation, D1 = D0 * (1 + g)

$2.05 = $2.00 * (1 + g)

$2.05 - 2.00 = 2.00g

0.05 / 2 = g

g = 2.5%

Then according to the equation (b)

2.50% = 11.00% * b

b = 2.50%/11.00%

b = 22.72%