Question

The payout ratio is computed by dividing
a. dividends paid per share by net income.
b. total cash dividends paid to common stockholders by retained earnings.
c. total cash dividends paid to common stockholders by net income.
d. dividends paid per share by year-end stock price.

Answer 1

Answer: Option A

Explanation: Dividend payout ratio indicates the portion of earnings that is paid out to stockholders in the form of return for investing in the business. This ratio highly affects the market price of the share. The dividend payout ratio is calculated by dividing dividends paid for the year with the net income of that particular year.

Hence, option A is the right answer.