Financial Terms dividend payout ratio

# Definition of dividend payout ratio

## dividend payout ratio

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.

## dividend payout ratio

Percentage of earnings paid out as dividends.

## Dividend payout ratio

Percentage of earnings paid out as dividends.

# Related Terms:

## "Soft" Capital Rationing

Capital rationing that under certain circumstances can be violated or even viewed
as made up of targets rather than absolute constraints.

## Acceleration Clause

Clause causing repayment of a debt, if specified events occur or are not met.

## Accelerationist Hypothesis

Belief that an effort to keep unemployment below its natural rate results in an accelerating inflation.

## accounts receivable turnover ratio

A ratio computed by dividing annual
sales revenue by the year-end balance of accounts receivable. Technically
speaking, to calculate this ratio the amount of annual credit sales should
be divided by the average accounts receivable balance, but this information
is not readily available from external financial statements. For
reporting internally to managers, this ratio should be refined and finetuned
to be as accurate as possible.

## Acid-test ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
items to current liabilities.

## ACID-TEST RATIO

A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
(Cash + Accounts receivable + Marketable securities) / (Current liabilities)

See quick ratio

## acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

## Adjusted Cash Flow Provided by Continuing Operations

Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.

## Appraisal ratio

The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
deviation.

## Articles of incorporation

Legal document establishing a corporation and its structure and purpose.

## Asset activity ratios

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

## Asset/equity ratio

The ratio of total assets to stockholder equity.

## asset turnover ratio

A broad-gauge ratio computed by dividing annual
sales revenue by total assets. It is a rough measure of the sales-generating
power of assets. The idea is that assets are used to make sales, and the
sales should lead to profit. The ultimate test is not sales revenue on
assets, but the profit earned on assets as measured by the return on
assets (ROA) ratio.

## Basic Earnings Power Ratio

Percentage of earnings relative to total assets; indication of how
effectively assets are used to generate earnings. It is calculated by
dividing earnings before interest and taxes by the book value of all
assets.

## Benefit Ratio Method

The proportion of unemployment benefits paid to a company’s
former employees during the measurement period, divided by the total
payroll during the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

## Benefit Wage Ratio Method

The proportion of total taxable wages for laid off
employees during the measurement period divided by the total payroll during
the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to \$60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

## Capital rationing

Placing one or more limits on the amount of new investment undertaken by a firm, either
by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital
budget.

## capital rationing

a condition that exists when there is an
upper-dollar constraint on the amount of capital available
to commit to capital asset acquisition

## capital rationing

Limit set on the amount of funds available for investment.

## Capitalization ratios

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.

## Cash dividend

A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in

## cash dividend

Payment of cash by the firm to its shareholders.

## Cash flow coverage ratio

The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.

## Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
income.

## Cash Flow–to–Income Ratio (CFI)

Adjusted cash flow provided by continuing operations
divided by adjusted income from continuing operations.

## CASH FLOWS FROM OPERATIONS

A section on the cash-flow Stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business.

## Cash ratio

The proportion of a firm's assets held as cash.

## Cash Ratio

ratio of cash and cash equivalents to liabilities; in the case of a bank, the ratio of cash to total deposit liabilities.

## Common stock ratios

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.

## Concentration account

A single centralized account into which funds collected at regional locations
(lockboxes) are transferred.

## concentration banking

System whereby customers make payments to a regional collection center which transfers funds to
a principal bank.

## Concentration services

Movement of cash from different lockbox locations into a single concentration
account from which disbursements and investments are made.

## Configuration audit

A review of all engineering documentation used as the basis
for a manufactured product to see if the documentation accurately represents
the finished product.

## Configuration control

Verifying that a delivered product matches authorizing
engineering documentation. This also refers to engineering changes made subsequent
to the initial product release.

## constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.

## contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales

## Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

## Conversion ratio

The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.

## Corporation

A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
assets, incur liabilities, and sell securities, among other things.

## Corporation

A legal entity, organized under state laws, whose investors purchase
shares of stock as evidence of ownership in it. A corporation is a legal entity, which
eliminates much of the liability for the corporation’s actions from its investors.

## corporation

Business owned by stockholders who are not personally

## Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

## Coverage ratios

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.

## Credit Rationing

Restriction of loans by lenders so that not all borrowers willing to pay the current interest rate are able to obtain loans.

With dividend.

## Cumulative dividend feature

A requirement that any missed preferred or preference stock dividends be paid
in full before any common dividend payment is made.

## Current ratio

Indicator of short-term debt paying ability. Determined by dividing current assets by current
liabilities. The higher the ratio, the more liquid the company.

## Current ratio

A ratio that shows how many times a company could pay its current debts if it used its current assets to pay them. The formula:
(Current assets) / (Current liabilities)

## current ratio

Calculated to assess the short-term solvency, or debt-paying
ability of a business, it equals total current assets divided by total current
liabilities. Some businesses remain solvent with a relatively low current
ratio; others could be in trouble with an apparently good current ratio.
The general rule is that the current ratio should be 2:1 or higher, but
please take this with a grain of salt, because current ratios vary widely
from industry to industry.

## Current Ratio

A measure of the ability of a company to use its current assets to
pay its current liabilities. It is calculated by dividing the total current
assets by the total current liabilities.

## Current Ratio

Current assets divided by current liabilities. This ratio indicates the extent to which the claims of short-term creditors are covered by assets expected to be converted to cash in the near future.

## Customary payout ratios

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

## Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

## Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.

## Debt/Equity Ratio

A comparison of debt to equity in a company's capital structure.

## Debt ratio

Total debt divided by total assets.

## Debt Ratio

The percentage of debt that is used in the total capitalization of a
company. It is calculated by dividing the total book value of the
debt by the book value of all assets.

## Debt-service coverage ratio

Earnings before interest and income taxes plus one-third rental charges, divided
by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one
minus the tax rate.

## debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.

## Declaration date

The date on which a firm's directors meet and announce the date and amount of the next
dividend.

## Declaration date

The date on which the board of directors has declared a dividend.

## Discontinued operation

A business segment that has been or is planned to be closed or sold off.

## Discontinued Operations

Net income and the gain or loss on disposal of a business segment whose assets and operations are clearly distinguishable from the other assets and operations of an entity.

## Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

## Dividend

A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock
selling for \$20 a share with an annual dividend of \$1 a share yields the investor 5%.

## Dividend

A payment a company makes to stockholders. Earnings before income tax. The profit a company made
before income taxes.

## Dividend

The payment of after-tax profits to shareholders as their share of the profits of the business for an accounting period.

## Dividend

A payment made to shareholders that is proportional to the number of shares
owned. It is authorized by the Board of Directors.

## dividend

Periodic cash distribution from the firm to its shareholders.

## Dividend

As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.
As the term dividend relates to a life insurance policy, it means that if that policy is "participating", the policy owner is entitled to participate in an equitable distribution of the surplus earnings of the insurance company which issued the policy. Surpluses arise primarily from three sources:
1) the difference between anticipated and actual operating expenses,
2) the difference between anticipated and actual claims experience, and
3) interest earned on investments over and above the rate required to maintain policy reserves. Having regard to the source of the surplus, the "dividend" so paid can be considered, in part at least, as a refund of part of the premium paid by the policy owner.
Life insurance policy owners of participating policies usually have four and sometimes five dividend options from which to choose:
1) take the dividend in cash,
2) apply the dividend to reduce current premiums,
3) leave the dividends on deposit with the insurance company to accumulate at interest like a savings plan,
4) use the dividends to purchase paid-up whole life insurance to mature at the same time as the original policy,
5) use the dividends to purchase one year term insurance equal to the guaranteed cash value at the end of the policy year, with any portion of the dividend not required for this purpose being applied under one of the other dividend options.
NOTE: It is suggested here that if you have a participating whole life policy and at the time of purchase received a "dividend projection" of incredible future savings, ask for a current projection. Life insurance company's surpluses are not what they used to be.

## Dividend

Unlike dividends which are paid to company shareholders, participating insurance policy dividends are not based on the company's overall profits. Rather, they are determined by grouping policies by type and country of issue and looking at how each class contributes to the company's earnings and surplus.

## Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.

## Dividend clientele

A group of shareholders who prefer that the firm follow a particular dividend policy. For
example, such a preference is often based on comparable tax situations.

## dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.

## Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

## dividend growth method

a method of computing the cost
of common stock equity that indicates the rate of return
that common shareholders expect to earn in the form of
dividends on a company’s common stock

## Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.

## Dividend income

Income that a company receives in the form of dividends on stock in other companies that it holds.

## Dividend limitation

A bond covenant that restricts in some way the firm's ability to pay cash dividends.

## Dividend policy

An established guide for the firm to determine the amount of money it will pay as dividends.

## Dividend Policy

This policy governs Canada Life's actions regarding distribution of dividends to policyholders. It's goal is to achieve a dividend distribution that is equitable and timely, and which gives full recognition of the need to ensure the ongoing solidity of the company. It also specifies that distribution to individual policyholders must be equitable between dividend classes and policyholder generations, and among policyholders within any class.

## Dividend rate

The fixed or floating rate paid on preferred stock based on par value.

## Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.

## Dividend rights

A shareholders' rights to receive per-share dividends identical to those other shareholders receive.

## Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

## dividend yield ratio

Cash dividends paid by a business over the most
recent 12 months (called the trailing 12 months) divided by the current
market price per share of the stock. This ratio is reported in the daily
stock trading tables in the Wall Street Journal and other major newspapers.

## Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.

## Dividends

Amounts paid to the owners of a company that represent a share of the income of the company.

## Dividends

Profits paid out to shareholders by a corporation.

## Dividends per share

Amount of cash paid to shareholders expressed as dollars per share.

## Dividends per share

dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.

## Dollar duration

The product of modified duration and the initial price.

## Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

## Duration

A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

## Duration

The weighted average of the time until maturity of each of the
expected cash flows of a debt security