# How to Calculate the Stock Price Payout Ratio

by Matt McGew

A stock price payout ratio is a calculation used by investors that looks at the dividend paid by a business as a percent of the business's earnings per share. Investors use this ratio to help determine the value of a company's stock. You can manually calculate the stock price payout ratio with some basic information from the business's financial statements.

1. Determine the net income for the business. You can find the net income information on the business's income statement. For example, assume the net income for the business is \$1 million.

2. Determine the number of shares outstanding for the business. For example, assume the company has 100,000 outstanding shares.

3. Divide the net income by the outstanding shares. Continuing the same example, \$1 million divided by 100,000 equals \$10. This figure represents the earnings per share for the business.

4. Determine the dividend paid by the business. For example, assume the company paid a dividend of \$2 per share.

5. Divide the dividends paid by the business by the earnings per share. Continuing the same example, \$2 divided by \$10 equals 20 percent. This figure represents the stock price payout ratio.

#### References

• "Principles of Finance"; Scott Besley and Eugene Brigham; 2008