Payout Ratio Calculator

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Reviewed by: Helena Cruz, Certified Financial Planner (CFP)
Ms. Cruz specializes in equity analysis, dividend policy, and long-term retirement income strategies.

The **Payout Ratio Calculator** measures the percentage of a company’s earnings paid out as dividends. This four-variable calculator solves for any missing input: **Dividends Paid (DP)**, **Net Income (NI)**, the **Payout Ratio (R)**, or the implied **Retention Ratio (RR)**. **Input any three of the four core variables** to find the missing one.

Dividends Paid (DP, \$):

Net Income (NI, \$):

Payout Ratio (R, %):

Retention Ratio (RR, %):

Payout Ratio Formulas

The Payout Ratio (R) is directly calculated by Dividends Paid (DP) divided by Net Income (NI). The Retention Ratio (RR) is its inverse ($1 – R$).

$$ R = \frac{DP}{NI} $$ $$ RR = 1 – R = \frac{NI – DP}{NI} $$ $$ DP = NI \times R $$ $$ NI = \frac{DP}{R} $$

Formula Source: Investopedia: Payout Ratio

Variables Explained

The Payout Ratio is a simple yet powerful measure of capital allocation:

Dividends Paid (DP): The total monetary value of dividends distributed to shareholders over a specific period.
Net Income (NI): The company’s total earnings after deducting all expenses, interest, and taxes.
Payout Ratio (R): The percentage of Net Income distributed as dividends (expressed as a percentage).
Retention Ratio (RR): The percentage of Net Income that is retained by the company for reinvestment or debt reduction (expressed as a percentage).

Related Calculators

Analyze equity and profitability using these related financial ratios:

What is the Payout Ratio?

The **Payout Ratio** is a critical financial metric that reveals a company’s dividend policy and its use of capital. A Payout Ratio of $40\%$ means the company distributes 40 cents of every dollar of profit to its shareholders as dividends, retaining the remaining 60 cents for internal growth, debt repayment, or other investments (the Retention Ratio).

This ratio is key for investors seeking income (high ratio preferred) versus growth (low ratio preferred). A very high ratio (e.g., above $75\%$) can indicate that the dividend may be unsustainable, especially if earnings fluctuate. Conversely, a ratio over $100\%$ means the company is paying dividends out of retained earnings or debt, which is alarming.

How to Calculate Payout Ratio (Example)

Identify Components:
A company reports $\mathbf{Net\ Income\ (NI)}$ of $\mathbf{\$500,000}$ and pays $\mathbf{Dividends\ Paid\ (DP)}$ totaling $\mathbf{\$150,000}$.
Apply the Payout Ratio Formula:
$$ R = \frac{DP}{NI} = \frac{\$150,000}{\$500,000} $$
Determine the Ratio:
The result is $0.30$. Converting to a percentage, the Payout Ratio is $\mathbf{30\%}$.
Calculate Retention Ratio (Implied):
The remaining earnings are retained: $RR = 1 – R = 1 – 0.30 = 0.70$ or $\mathbf{70\%}$.

Frequently Asked Questions (FAQ)

Q: Is a high Payout Ratio good or bad?

A: It depends on the investor’s goal. Income-focused investors prefer a high ratio. However, a high ratio suggests the company has limited funds for reinvestment, which is often seen as negative for growth stocks.

Q: What does a Payout Ratio over 100% signal?

A: A ratio over 100% means the company is paying more in dividends than it is earning in net income. This is unsustainable and often indicates the company may cut its dividend soon.

Q: How does the Retention Ratio relate to the Payout Ratio?

A: They are inversely related. The Payout Ratio ($R$) is the percentage paid out, and the Retention Ratio ($RR$) is the percentage kept. Their sum must always equal $100\%$ ($R + RR = 1$).

Q: Can the Payout Ratio use Earnings Per Share (EPS)?

A: Yes, the ratio can also be calculated as $DPS / EPS$ (Dividends Per Share / Earnings Per Share), which yields the same result as the total dollar value calculation.

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