Payout Ratio is a term that indicates how a large share of the generated net profit after tax is paid out to shareholders and how much is used for reinvestment.
Calculation:
Payout Ratio = Dividend per Share / Earnings per Share
Use of the Payout ratio in practice: The ratio reflects the dividend policy of the company. It is one of the strategic decisions of its management. It is an input to other ratios.
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