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Understanding Payout Ratio

November 2, 2017 by OSYB Staff

Typically expressed as a percentage, payout ratio is the proportion of earnings paid out as cash dividends to shareholders.  How do you calculate the payout ratio?  Payout ratio = dividends per share / earnings per share.

To obtain a deeper understanding of a company’s payout ratios you should review these relevant components:

  • cash from operating activities
  • cash dividends paid (part of the cash flows from financing activities)

As with any investment you choose to partake in, be thorough in your research and confer with investment professionals.  If you are interested in a U.S. corporation with stock that is publicly traded, be prudent and review the company’s Form 10-K.

Find out more:  What is the payout ratio?