{"id":217538,"date":"2025-05-22T05:14:07","date_gmt":"2025-05-22T05:14:07","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=217538"},"modified":"2025-05-22T05:14:10","modified_gmt":"2025-05-22T05:14:10","slug":"which-of-the-following-companies-has-the-lowest-payout-ratio","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/22\/which-of-the-following-companies-has-the-lowest-payout-ratio\/","title":{"rendered":"Which of the following companies has the LOWEST payout ratio"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Which of the following companies has the LOWEST payout ratio?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a company with $49 million cash dividends declared on common stock and a net income of $203 million<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a company with $28 million cash dividends declared on common stock and a net income of $142 million<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a company with $18 million cash dividends declared on common stock and a net income of $94 million<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a company with $97 million cash dividends declared on common stock and a net income of $376 million<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-1-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To determine which company has the <strong>lowest payout ratio<\/strong>, we must first understand what the <strong>payout ratio<\/strong> means.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Definition: Payout Ratio<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The <strong>payout ratio<\/strong> is a financial metric that shows the percentage of <strong>net income<\/strong> a company pays to shareholders in the form of <strong>dividends<\/strong>. It\u2019s calculated using the formula: Payout&nbsp;Ratio=(Dividends&nbsp;DeclaredNet&nbsp;Income)\u00d7100\\text{Payout Ratio} = \\left(\\frac{\\text{Dividends Declared}}{\\text{Net Income}}\\right) \\times 100<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Step-by-Step Calculations<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s calculate the payout ratio for each company:<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>1. First Company:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Dividends = $49 million<\/li>\n\n\n\n<li>Net Income = $203 million<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Payout&nbsp;Ratio=(49203)\u00d7100\u224824.14%\\text{Payout Ratio} = \\left(\\frac{49}{203}\\right) \\times 100 \\approx 24.14\\%<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2. Second Company:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Dividends = $28 million<\/li>\n\n\n\n<li>Net Income = $142 million<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Payout&nbsp;Ratio=(28142)\u00d7100\u224819.72%\\text{Payout Ratio} = \\left(\\frac{28}{142}\\right) \\times 100 \\approx 19.72\\%<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>3. Third Company:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Dividends = $18 million<\/li>\n\n\n\n<li>Net Income = $94 million<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Payout&nbsp;Ratio=(1894)\u00d7100\u224819.15%\\text{Payout Ratio} = \\left(\\frac{18}{94}\\right) \\times 100 \\approx 19.15\\%<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>4. Fourth Company:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Dividends = $97 million<\/li>\n\n\n\n<li>Net Income = $376 million<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Payout&nbsp;Ratio=(97376)\u00d7100\u224825.80%\\text{Payout Ratio} = \\left(\\frac{97}{376}\\right) \\times 100 \\approx 25.80\\%<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Now let\u2019s compare:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>1st Company: <strong>24.14%<\/strong><\/li>\n\n\n\n<li>2nd Company: <strong>19.72%<\/strong><\/li>\n\n\n\n<li>3rd Company: <strong>19.15%<\/strong> \u2190 <strong>Lowest<\/strong><\/li>\n\n\n\n<li>4th Company: <strong>25.80%<\/strong><\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\u2705 <strong>Correct Answer:<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>A company with $18 million cash dividends declared on common stock and a net income of $94 million<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Explanation Summary (300 Words)<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The payout ratio is a vital indicator of how a company balances rewarding shareholders with reinvesting in its business. A lower payout ratio suggests the company is retaining a larger portion of its earnings, which could be used for growth, debt reduction, or reserves. This is often seen in growing companies or those reinvesting heavily in future operations.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this question, we are asked to identify the company with the <strong>lowest payout ratio<\/strong> among four options. Using the standard formula for payout ratio \u2014 dividends divided by net income \u2014 we computed the values for each company. The third company, which paid $18 million in dividends from a $94 million net income, had the lowest ratio of approximately <strong>19.15%<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This implies that only 19.15% of its earnings were distributed as dividends, while the remaining 80.85% were retained within the company. This financial strategy might reflect a conservative dividend policy, potentially signaling future growth, internal investment opportunities, or cautious management.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In contrast, higher payout ratios (such as 25.80% in the fourth company) indicate more generous dividend policies but might also mean fewer funds for reinvestment. While higher dividends are attractive to income-focused investors, low payout ratios often appeal to those prioritizing capital appreciation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Therefore, identifying and understanding the payout ratio helps investors evaluate a company&#8217;s dividend policy in context with its overall financial strategy.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Which of the following companies has the LOWEST payout ratio? a company with $49 million cash dividends declared on common stock and a net income of $203 million a company with $28 million cash dividends declared on common stock and a net income of $142 million a company with $18 million cash dividends declared on [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-217538","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/217538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=217538"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/217538\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=217538"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=217538"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=217538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}