Payout ratio
Percentage of net income the company distributes as dividends. Measures dividend sustainability: above 100% the company is paying out more than it earns.
Payout Ratio = Dividends paid ÷ Net income
What percentage of profit is paid out as a dividend. What isn't paid out stays inside to reinvest or cut debt, so this ratio describes company policy: mature and distributing, or still reinvesting.
Above 100% the company pays out more than it earns, which is only sustainable temporarily — drawing on cash or debt. But the more useful warning isn't against profit, it's against CASH: a comfortable payout on accounting profit can be unsustainable if free cash flow is half that. A sky-high ratio also shows up, harmlessly, when one year's profit collapses on a one-off and the dividend is held.
Where to see it on ValuatePad
Year by year, for every company, in the tab Shareholder returns.