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

Calculate the payout ratio and return on common stockholders’ equity ratio for 2017 and 2016. (Round answers to 1 decimal place, e.g. 12.5%)

Answer 1

For year 2016

Payout ratio = Total dividend/ Net income

= (dividend declared for common stockholders+ dividend declared for Preferred stockholders)/Net income
= (630+45)/685

= 675/685

= 98.5%

Return on common stockholders equity = ( Net income - dividend declared for Preferred stockholders)/Average common stockholders equity

= (685-45)/2,925

= 640/2,925

= 21.9%

For year 2017

Payout ratio = Total dividend/ Net income

= (dividend declared for common stockholders+ dividend declared for Preferred stockholders)/Net income
= (335+45)/605

= 380/605

= 62.8%

Return on common stockholders equity = ( Net income - dividend declared for Preferred stockholders)/Average common stockholders equity

= (605-45)/2,825

= 560/2,825

= 19.8%

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