Question

The following financial information is available for Flint Corporation.

(in millions) 2017 2016
Average common stockholders’ equity $2,825 $2,925
Dividends declared for common stockholders 335 630
Dividends declared for preferred stockholders 45 45
Net income 605 685

Required:
Calculate the payout ratio and return on common stockholders’ equity ratio for 2017 and 2016.

Answer 1

dividends payout ratio = total dividends / net income

• dividends payout ratio 2016 = $630 / $685 = 0.9197 = 91.97%
• dividends payout ratio 2017 = $335 / $605 = 0.5537 = 55.37%

return on equity = (net income - preferred dividends) / average equity

• return on equity 2016 = ($685 - $45) / $2,925 = 0.2188 = 21.88%
• return on equity 2017 = ($605 - $45) / $2,825 = 0.1982 = 19.82%