AExplain What the Dividend Payout Ratio Is and Which Firms

question 101

Essay

a.Explain what the dividend payout ratio is and which firms typically have a high ratio and which firms may have the lowest.
b.Many firms operate at a dividend payout ratio of less than 50%.Why do many firms not pay a larger percentage of income as dividends?

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Definitions:

Net Income

Net income is the total earnings of a company after subtracting all expenses, including taxes, interest, and operating expenses, from its total revenues.

Capital

Financial assets or the financial value of assets, such as cash and securities, owned by a business or individual, used for creating wealth or to engage in further production.

Revenue

The total amount of money earned by a business from its normal business operations, before any expenses are subtracted.

Credit Balance

An accounting situation where the sum of credits in an account exceeds the sum of debits, often seen in liability and revenue accounts.