Question

The dividend payout ratio is calculated as:

a. The annual dividend amount divided by retained earnings.
b. The annual dividend amount divided by the annual net income.
c. The annual dividend amount divided by net profit.
d. The annual dividend amount divided by outstanding shares.

Answer 1

The dividend payout ratio is calculated as the annual dividend amount divided by the annual net income.

Step-by-step explanation:

The dividend payout ratio is calculated as the annual dividend amount divided by the annual net income (option b). The dividend payout ratio measures the percentage of a company's net income that is paid out to shareholders as dividends. For example, if a company has an annual net income of $1 million and pays out $200,000 in dividends, the dividend payout ratio would be 20% ($200,000 / $1,000,000).