Question

Suppose the following financial information is available for Walgreen Company.

(in millions)		2017		2016
Average common stockholders’ equity		$ 12,830.0		$ 11,530.0
Dividends declared for common stockholders		465		385
Dividends declared for preferred stockholders		0		0
Net income		1,815		2,115

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

Answer 1

payout ratio = dividends for common stock holders / (net income - preferred dividends)

for 2017

=>465 / (1815-0)

=>25.62%.

for 2016

=>385/(2115-0)

=>18.20%

now,

return on common stockholder's equity = (net income - preferred dividend) / average common stockholder's equity

for 2017

=>(1815-0) / 12,830 *100

=>14.15%.

for 2016

=>(2115-0) / 11,530 *100

=>18.34%.

	2017	2016
payout ratio	25.62%	18.20%
return on commonstock holder's equity	14.15%	18.34%