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LSDefine
Simple English definitions for legal terms
payout ratio
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A quick definition of payout ratio:
Payout ratio is a way to measure how much money a company pays out to its shareholders in the form of dividends compared to how much money it earns. It is calculated by dividing the dividends per share by the earnings per share.
In simpler terms, payout ratio is the percentage of a company's profits that are paid out to its shareholders as dividends.
A more thorough explanation:
Definition: The payout ratio is a financial metric that measures the percentage of a company's earnings that are paid out to shareholders in the form of dividends. It is calculated by dividing the dividends per share by the earnings per share.
Example: If a company has earnings per share of $2 and pays out dividends per share of $0.50, the payout ratio would be 25% ($0.50/$2).
The payout ratio is an important metric for investors as it indicates how much of a company's earnings are being returned to shareholders. A high payout ratio may indicate that a company is committed to returning value to its shareholders, but it may also indicate that the company is not reinvesting enough in its business for future growth. On the other hand, a low payout ratio may indicate that a company is retaining more earnings for future growth, but it may also indicate that the company is not generating enough profits to sustain dividend payments.