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Could some one please tell me how to calculate payout ratio and how you calculate shareholder wealth please???
Thank you
The payout ratio is dividend per share / earnings per share
(or total dividends / total earnings – it is the same thing 🙂 )
The shareholders wealth is measured by the market value of their shares.
How to calculate it depends on the context of the question. The market value can be calculated by the dividend growth model, or using the P/E ratio, or using net assets.It is also often mentioned in rights issue questions – there is a lecture on rights issues.
Would I be correct in saying, if it asks for the effect or increase in shareholders wealth, then the dividends received + capital gain should be taken into account?
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