Payout ratio is a measure of how much of a company’s net income is paid out to its common shareholders as dividends, in percentage. It is calculated by dividing the total common dividends by the income before extraordinary items less minority and preferred dividends. The payout ratio shows how much of a company’s earnings are distributed to common shareholders and how much is retained for reinvestment or debt repayment. The payout ratio does not apply if the company has negative income tax expenses or pretax income. The formula for payout ratio is:
Payout ratio = (Total common dividends / Income before extraordinary items less minority and preferred dividends) * 100
Where:
- Total common dividends is IS030,
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- Income before extraordinary items less minority and preferred dividends is IS031,
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