Question

(in millions) 2017 2016 Average common stockholders’ equity $2,825 $2,925 Dividends declared for common stockholders 335 630 Dividends declared for preferred stockholders 45 45 Net income 605 685 Calculate the payout ratio and return on common stockholders’ equity ratio for 2017 and 2016.

Answer 1

Answer:

a) Payout ratio for common stock:

= 0.60 or 60% for 2017

= 0.98 or 98% for 2016

b) Return on Common Stockholders' Equity

2017 = 19.82%

2016 = 21.88%

Explanation:

a) Data and Calculations:

                                                                    (in millions) 2017       2016

Average common stockholders’ equity                    $2,825    $2,925

Net income                                                                      605          685

Dividends declared for preferred stockholders              45            45

Net income available for common stockholders          560         640

Dividends declared for common stockholders             335         630

Payout ratio for common stock:

= Dividends per share/Earnings per share

Dividends / Earnings for common stockholders

= $335/$560 = 0.60 for 2017

= $630/$640 = 0.98 for 2016

Return on common stockholders' equity:

= Earnings after preferred stock/Common Stockholders' Equity

2017 = $560/$2,825

= 0.1982

= 19.82%

2016 = $640/$2,925

= 0.2188

= 21.88%