The payout ratio can be calculated by
A) dividing cash dividends per share by earnings per share.
B) dividing cash dividends by net income less preferred dividends.
C) dividing cash dividends by market price per share.
D) dividing net income by cash dividends per share.

Question

Quizplus · Accepted Answer

The payout ratio measures the portion of earnings that are paid out as dividends. It is calculated by dividing cash dividends by net income less preferred dividends. Therefore, choice B is the correct option as it reflects this calculation. Choice A is not correct as it divides cash dividends by earnings per share which does not account for preferred dividends. Choice C is not correct as it divides cash dividends by market price per share which is not a measure of earnings. Choice D is not correct as it divides net income by cash dividends per share, which is not the correct formula for calculating payout ratio.

The Payout Ratio Can Be Calculated by