Question

Average common stockholders’ equity $3,015 $3,090 Dividends declared for common stockholders 365 655 Dividends declared for preferred stockholders 40 40 Net income 685 730 Calculate the payout ratio and return on common stockholders’ equity ratio for 2017 and 2016

Answer 1

Year 2016

Payout ratio

= (Dividends Paid to Common Stockholders/ Net Income) * 100

= 655/730 * 100

= 89.7%

Return on Common Stockholder's Equity

= ((Net Income - Preferred Stock Dividend) / Average Common Stockholder's Equity) * 100

= ((730 - 40)/ 3,090) * 100

= 22.3%

Year 2017

Payout ratio

= (Dividends Paid to Common Stockholders/ Net Income) * 100

= 365/ 685 * 100

= 53.3%

Return on Common Stockholder's Equity

= ((Net Income - Preferred Stock Dividend) / Average Common Stockholder's Equity) * 100

= ((685 - 40)/ 3,015) * 100

= 21.4%