Question

Pay out ratio means .

• A. ratio of debtors or creditors
• B. ratio of earning that are disturbed through dividend
• C. ratio of profit distributed to profit retained
• D. none of these

Answer 1

Answer: (B)

ratio of earning that are disturbed through dividend

Payout ratio = Dividend/ Total earnings available for shareholders

For example let the dividend declared be $Rs.100000$ and the total earnings for the shareholders be $Rs.500000$ therefore,

Payout ratio = $100000/500000$

= $0.2$ times

So dividend declared would be $0.2$ times the earning made and the remaining $0.8$ times of the earnings would be retained by the company in the form of reserves and surplus.