Home page     Downloads      Privacy policy     Disclaimer & terms of use     Contact us     Advertise with us     About us      Link to us

Home Financial Statement Analysis Dividend Payout Ratio


Dividend Payout Ratio:

Dividend payout ratio is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future.

Formula of Dividend Payout Ratio:

Following formula is used for the calculation of dividend payout ratio

Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share

A complementary of this ratio is retained earnings ratio. Retained earning ratio is calculated by using the following formula:

Retained Earning Ratio = Retained Earning Per Equity Share / Earning Per Equity Share


Calculate dividend payout ratio and retained earnings from the following data:

Net Profit
Provision for taxation
Preference dividend


No. of equity shares
Dividend per equity share


Payout Ratio = ($0.40 / $1) 100

= 40%

Retained Earnings Ratio = ($0.60 /$1) 100

= 60%

Significance of the Ratio:

The payout ratio and the retained earning ratio are the indicators of the amount of earnings that have been ploughed back in the business. The lower the payout ratio, the higher will be the amount of earnings ploughed back in the business and vice versa. A lower payout ratio or higher retained earnings ratio means a stronger financial position of the company.

You may also be interested in other articles from "financial statement analysis" chapter:

  1. Horizontal and Vertical Analysis
  2. Ratios Analysis
  3. Horizontal Analysis or Trend Analysis
  4. Trend Percentage
  5. Vertical Analysis
  6. Accounting Ratios Definition, Advantages, Classification and Limitations:
  7. Gross profit ratio
  8. Net profit ratio
  9. Operating ratio
  10. Expense ratio
  11. Return on shareholders investment or net worth
  12. Return on equity capital
  13. Return on capital employed (ROCE) Ratio
  14. Dividend yield ratio
  15. Dividend payout ratio
  16. Earnings Per Share (EPS) Ratio
  17. Price earning ratio
  18. Current ratio
  19. Liquid/Acid test/Quick ratio
  20. Inventory/Stock turnover ratio
  21. Debtors/Receivables turnover ratio
  22. Average collection period
  23. Creditors/Payable turnover ratio
  24. Working capital turnover ratio
  25. Fixed assets turnover ratio
  26. Over and under trading
  27. Debt-to-equity ratio
  28. Proprietary or Equity ratio
  29. Ratio of fixed assets to shareholders funds
  30. Ratio of current assets to shareholders funds
  31. Interest coverage ratio
  32. Capital gearing ratio
  33. Over and under capitalization
  34. Financial-Accounting- Ratios Formulas
  35. Limitations of Financial Statement Analysis


Downloadable Materials

Learn Accounting Easily With AccountingCoach Pro

View Online or Download all of the materials to Your Computer and Print Immediately

What is Included in Accounting Book
Downloadable Self-Study Materials ( Available in Word Editable Format)
Help in preparation of Online Exams (Available in Word Editable Formatt)
Solved Accounting Problems
Bookkeeping and Financial Statements

Back to Home Page | Back to Financial Statement Analysis Page

Managerial Accounting

Introduction to Managerial Accounting
Business and Quality Improvement Programs
Cost Terms, Concepts and Classification
Job Order Costing system
Process Costing System
Process Costing System - Addition of Materials & Beginning Inventory
Controlling and Costing Materials
Materials and Inventory Cost Control
By Products and Joint Products Costing
Variable Costing System
Activity Based Costing System
Budgeting and Planning
Standard Costing and Variance Analysis
Gross Profit Analysis
Linear Programming Technique
Segment Reporting and Transfer Pricing
Capital Budgeting Decisions
Service Department Costing
Cash Flow statement
Financial statement Analysis
Pricing Products and Services
Managerial Accounting Terms and Definitions
Managerial / Cost Accounting Formulas

Financial Accounting

Bookkeeping and Bookkeeping Terms
Accounting Principles and Accounting Equation
Accounting For Bills of Exchange
Subdivision of Journal
Final Accounts
Capital and Revenue Items
Single Entry System/Accounting From Incomplete Records
Accounting For Non-Trading Concerns
Accounting for Consignment / Consignment Accounts
Accounting for Joint Ventures
Accounting for Depreciation

About us !

Also see formula of gross margin ratio method with financial analysis, balance sheet and income statement analysis tutorials for free download on Accounting4Management.com.Accounting students can take help from Video lectures, handouts, helping materials, assignments solution, Online Quizzes, GDB, Past Papers, books and Solved problems. Also learn latest Accounting & management software technology with tips and tricks.

Home page   Download Material   Privacy policy   Disclaimer & terms of use   Contact us   Advertise with us   About us   Useful links   Link to us

Copyrights of all content on this web site are owned by Accounting For Management except where indicated in source or copyright statements. Accounting For Management must be contacted for permission to copy or redistribute any material published on this website.
Copyright 2014 Accounting For Management. All rights reserved.