Two otherwise equal companies have significantly different dividend payout ratios. Which of the following statements is most likely to be correct? The company with the higher dividend payout ratio:
A)will have a higher inventory turnover ratio.
B)will have a lower inventory turnover ratio.
C)will have a higher earnings retention ratio.
D)will have a lower earnings retention ratio.

Question

Quizplus · Accepted Answer

A higher dividend payout ratio means that the company is distributing a larger portion of its profits to shareholders as dividends, which leaves less money available for the company to retain and reinvest in the business. Therefore, the company with the higher dividend payout ratio will have a lower earnings retention ratio. The inventory turnover ratio is not directly related to dividend payout ratio.

Two Otherwise Equal Companies Have Significantly Different Dividend Payout Ratios