Dividend Payout Ratio is a

$$Dividend\quad Payout\quad Ratio=$$$$\frac { Dividend\quad per\quad Share }{ Earnings\quad per\quad Share } $$

####

####

**type of Profitability Ratio**that determines the**Dividend paid by a company on each share relative to the Earning Per Share (EPS) of the company.**Dividend Payout Ratio shows a company’s policy of dividend and the growth in Equity.$$Dividend\quad Payout\quad Ratio=$$$$\frac { Dividend\quad per\quad Share }{ Earnings\quad per\quad Share } $$

**Where,****Dividend Per Share is the Dividend declared by the company on each share.****And EPS = Net Profit / Total Number of Common Equity**

## Significance and Interpretation

**The dividend Payout Ratio**is the**percentage of earnings that a company distributes**among the**Shareholders.**- A higher Dividend Payout Ratio implies that a higher portion of the earning of the company is distributed among the Shareholders, hence a higher Dividend Payout Ratio attracts the investors.

### Examples

####
**Example 1: **

**Given below are few details of M/S XYZ Ltd., use them an calculate the Dividend Payout Ratio for M/S XYZ Ltd.**Particulars | Amount (in Rs.) |
---|---|

Equity Share Capital @ Rs 10.00 each | 5000000.00 |

Net Profit | 4000000.00 |

Rate of Dividend | 15% |

####
**Solution:**

**Number of Equity Shares =**5000000 / 10**⇨**500000

**Earnings Per Share =**Net Profit / Number of Shares

**⇨**4000000 / 500000

**⇨**8

**Dividend Per Share =**15 % of Rs. 10

**⇨**Rs. 1.5

**Dividend Payout Ratio =**Dividend Per Share / Earnings Per Share

**⇨**1.5 / 8

**⇨**3/16

**Hence, Dividend Payout Ratio = 3/16 or 0.1875 or 18.75%**