ankitgokani
Ankit Gokani
Dividend Payout Ratio
The Dividend Payout Ratio is a model for Cash Flow Measurement used by investors to determine if a company is generating a sufficient level of cash flow to assure a continued stream of dividends to them. It is also a measurement of the amount of current net income paid out in dividends rather than retained by the business.
The Dividend Payout Ratio Formula (Cash Flow Measurement Formula) is relatively straightforward:
Divide total annual dividend payments by annual Net Income plus Noncash Expenses minus Noncash Sales.
Calculating the Dividend Payout Ratio for one year provides a very unreliable indication only. A better approach is to run a trend line on the ratio for several years to see if a general pattern of decline or increase emerges.
This ratio is useful in projecting the growth of company as well. Its inverse, the Retention Ratio (the amount not paid out to shareholders in the form of dividends), can help project a company’s growth.
Debt to Equity Ratio
The Debt to Equity Ratio is used for Measuring Solvency and researching the Capital Structure of a company. It indicates how much the company is leveraged (in debt) by comparing what is owed to what is owned. In other words it measures a company's ability to borrow and repay money.
The Debt to Equity Ratio is closely watched by creditors and investors, because it reveals the extent to which company management is willing to fund its operations with debt, rather than equity. Lenders such as banks are particularly sensitive about this ratio, since an excessively high ratio of debt to equity will put their loans at risk of not being repaid. Possible actions by banks to counteract this problem are the use of restrictive contracts that force excess cash flow into debt repayment, restrictions on alternative use of cash, and a requirement for investors to put more equity into the company themselves.
A Debt to Equity Ratio Calculation is fairly simple:
Divide Total Debt (= Total Liabilities) by Total Equity. Can be multiplied with 100 to get a percentage.
Note that the Debt figure should include all operating and capital lease payments.
Sometimes only long-term debt is taken into account in the numerator to look at the long term debt to equity capital structure.
Comparing the result with industry peers may prove useful. It is recommended to use this ratio over a period of several years and additionally take into account WHEN certain repayments are due as this can make a major difference for the solvency of the company.
source:Management Methods | Management Models | Management Theories
The Dividend Payout Ratio is a model for Cash Flow Measurement used by investors to determine if a company is generating a sufficient level of cash flow to assure a continued stream of dividends to them. It is also a measurement of the amount of current net income paid out in dividends rather than retained by the business.
The Dividend Payout Ratio Formula (Cash Flow Measurement Formula) is relatively straightforward:
Divide total annual dividend payments by annual Net Income plus Noncash Expenses minus Noncash Sales.
Calculating the Dividend Payout Ratio for one year provides a very unreliable indication only. A better approach is to run a trend line on the ratio for several years to see if a general pattern of decline or increase emerges.
This ratio is useful in projecting the growth of company as well. Its inverse, the Retention Ratio (the amount not paid out to shareholders in the form of dividends), can help project a company’s growth.
Debt to Equity Ratio
The Debt to Equity Ratio is used for Measuring Solvency and researching the Capital Structure of a company. It indicates how much the company is leveraged (in debt) by comparing what is owed to what is owned. In other words it measures a company's ability to borrow and repay money.
The Debt to Equity Ratio is closely watched by creditors and investors, because it reveals the extent to which company management is willing to fund its operations with debt, rather than equity. Lenders such as banks are particularly sensitive about this ratio, since an excessively high ratio of debt to equity will put their loans at risk of not being repaid. Possible actions by banks to counteract this problem are the use of restrictive contracts that force excess cash flow into debt repayment, restrictions on alternative use of cash, and a requirement for investors to put more equity into the company themselves.
A Debt to Equity Ratio Calculation is fairly simple:
Divide Total Debt (= Total Liabilities) by Total Equity. Can be multiplied with 100 to get a percentage.
Note that the Debt figure should include all operating and capital lease payments.
Sometimes only long-term debt is taken into account in the numerator to look at the long term debt to equity capital structure.
Comparing the result with industry peers may prove useful. It is recommended to use this ratio over a period of several years and additionally take into account WHEN certain repayments are due as this can make a major difference for the solvency of the company.
source:Management Methods | Management Models | Management Theories
