• # Payout Ratios

Company pays back some part of the profit to the equity shareholders in terms of the dividends. After paying the dividend, company keeps the remaining profit as retained earnings to invest in business or future expansion.

Earnings per Share (EPS) denote the earnings or net income generated per common outstanding shares. This calculates the net income which is available per equity share. The EPS is calculated as

Earnings per Share (EPS) = Net Income or Earnings /

Total number of outstanding shares

The EPS is an important parameter to analyze the company performance. As it specifies the earnings available to the common shareholders, this is mainly used by the shareholders or the share market investors to check the company performance for a particular period of time.

The company pays some part of the earnings as dividends to the shareholders and the Dividend Payout Ratio is used to denote the percentage of the dividend distribution. Dividend payment is mainly announced as the percentage of the face value of the common share. Dividend payout ratio is calculated as the percentage of earnings distributed to the shareholders in terms of dividends. Mathematically,

Dividend Payout Ratio  = Dividends per common share/

Earnings per Share (EPS)

After paying the dividend, the company adds the remaining amount to the retained earnings of the company to be used later for business expansion or any other purpose. The retained earnings addition after paying the dividend as a percentage of total earnings is called the retention rate. Mathematically,

Retention Rate = (Earnings per Share (EPS) – Dividends per common share)/

Earnings per Share (EPS)

= 1- Dividend Payout Ratio