Finance Formulas / July 13, 2018 / Luz Tyson
The cash flow statement provides data for ratios dealing with cash. For example, the payout ratio is the percentage of net income paid out to investors. Both dividends and share repurchases are considered outlays of cash and can be found on the cash flow statement. For example, if dividends are $100,000, share repurchases are $100,000, and income is $400,000, the payout ratio is calculated by dividing $200,000 by $400,000, which is 50%.
Given that the debtequity ratio measures a company’s debt relative to the total value of its stock, it is most often used to gauge the extent to which a company is taking on debt as a means of leveraging (attempting to increase its value by using borrowed money to fund various projects). A high debtequity ratio generally means that a company has been aggressive in financing its growth with debt. Aggressive leveraging practices are often associated with high levels of risk. This may result in volatile earnings as a result of the additional interest expense.
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