CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
Aarav Textiles Ltd has net profit after tax of ₹80 lakh, and 10 lakh equity shares outstanding. It pays a dividend of ₹3 per share. What are its dividend payout ratio and retention ratio respectively?
Earnings per share are ₹8 (₹80 lakh divided by 10 lakh shares). A dividend of ₹3 gives a payout ratio of 3/8, which is 37.5%. The retention ratio is the balance, 62.5%.
- A37.5% and 62.5%Correct
- B30% and 70%
- C62.5% and 37.5%
- D25% and 75%
Explanation
EPS = 80 lakh / 10 lakh = ₹8. Payout ratio = 3/8 = 37.5%. Retention ratio = 100% - 37.5% = 62.5%. Option 3 reverses the two ratios, and 30% wrongly divides the dividend by ₹10.
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