Payout Ratio

The payout ratio measures the proportion of a company's net earnings that is distributed to shareholders as dividends, expressed as a percentage. It is calculated as Payout Ratio = Dividends Per Share ÷ Earnings Per Share × 100. A lower payout ratio indicates that the company retains more earnings for reinvestment into growth, while a higher ratio suggests a greater commitment to income distribution. Mature, cash-generative businesses in sectors like FMCG, utilities, and IT services in India typically maintain steady payout ratios, whereas high-growth companies tend to retain most of their earnings to fund expansion.