# Definition of __Customary payout ratios__

## Customary payout ratios

A range of **payout ratios** that is typical based on an analysis of comparable firms.

# Related Terms:

**ratios** that measure how effectively the firm is managing its assets.

Also called financial leverage **ratios**, these **ratios** compare debt to total capitalization

and thus reflect the extent to which a corporation is trading on its equity. Capitalization **ratios** can be

interpreted only in the context of the stability of industry and company earnings and cash flow.

**ratios** that are designed to measure the relative claims of stockholders to earnings

(cash flow per share), and equity (book value per share) of a firm.

**ratios** used to test the adequacy of cash flows generated through earnings for purposes of

meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

Percentage of earnings paid out as dividends.

Computed by dividing cash dividends for the year

by the net income for the year. It’s simply the percent of net income distributed

as cash dividends for the year.

Percentage of earnings paid out as dividends.

**payout ratios** that are consistent with the availability of excess funds to make

cash dividend payments.

Related: capitalization **ratios**.

See: financial lease.

Measures of the relative contribution of stockholders and creditors, and of the firm's ability

to pay financing charges. Value of firm's debt to the total value of the firm.

**ratios** that measure a firm's ability to meet its short-term financial obligations on time.

**ratios** that measure a firm's ability to meet its short-term financial obligations on time.

**ratios** that relate the market price of the firm's common stock to selected financial

statement items.

Generally, the proportion of earnings paid out to the common stockholders as cash dividends.

More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

## payout ratio

Fraction of earnings paid out as dividends.

## profit ratios

**ratios** based on sales revenue for a period. A measure of

profit is divided by sales revenue to compute a profit ratio. For example,

gross margin is divided by sales revenue to compute the gross margin

profit ratio. Dividing bottom-line profit (net income) by sales revenue

gives the profit ratio that is generally called return on sales.

## Profitability ratios

**ratios** that focus on the profitability of the firm. Profit margins measure performance

with relation to sales. Rate of return **ratios** measure performance relative to some measure of size of the

investment.

## Rate of return ratios

**ratios** that are designed to measure the profitability of the firm in relation to various

measures of the funds invested in the firm.

## Reserve ratios

Specified percentages of deposits, established by the Federal Reserve Board, that banks must

keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

## Short-term solvency ratios

**ratios** used to judge the adequacy of liquid assets for meeting short-term

obligations as they come due, including

1) the current ratio,

2) the acid-test ratio,

3) the inventory turnover ratio, and

4) the accounts receivable turnover ratio.

## Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a

certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line

increases in earnings occur.

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