The income statement is one of the basic financial statements used by companies. This statement accounts for revenues received by the company and expenses paid by the company. Additionally, the income statement shows the net income for the company over a given period of time. Using this net income information in combination with information about how the company uses its retained earnings, you can determine the dividends per share paid by the company.
1. Determine the net income from the income statement. For example, assume the net income is $2,000,000.
2. Determine the percentage of the net income used to pay dividends. For example, assume the company pays out 50 percent of its net income as dividends and retains the remaining 50 percent. Continuing the same example, $2,000,000 x .5 = $1,000,000. This figure represents the total dividends paid out by the company.
3. Determine the total number of outstanding shares of stock. For example, assume the company has a total of 4,000,000 outstanding shares of stock.
4. Divide the total dividend by the number of shares outstanding. Continuing the same example, $1,000,000 / 4,000,000 = $0.25. This figure represents the dividend per share paid by the company.
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
- Harper College: ACC101 - Chapter 11 Accounting for Equity