Question

Moon and Sons Inc. earned $245 million last year and retained $150 million. What is the payout ratio?

(Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer 1

Payout Ratio = (Dividend /Net Income) * 100

Dividend = Net Income - Retained Earnings

= $245 million - $150 million

= $95 million

A simple way to understand the above is,

A company earns $245 millions in a year. Out of its earnings it retains $150 million for using it in the business. The remaining part ($95 million) is distributed as dividends among the shareholders.

Payout Ratio = (Dividend /Net Income) * 100

= ($95 million / $245 million) * 100

= 38.78 %