B2. (dividend policy) a firm has 20 million common shares
The maximum overall payout ratio a firm can achieve without triggering a securities issue is determined by the dividend policy of the company. Generally speaking, this ratio is calculated by dividing total dividends paid over a given period by total net income reported during that same time frame. This serves as an indication of how much money investors can expect to receive from any given business in terms of cash or stock dividends.
In regards to the five-year period mentioned – firms should aim to keep their payout ratios under 60% – otherwise they may need additional capital to support future dividend payments. To calculate this ratio, one would take into consideration all profits earned and subtract out any expenses related to operations (i.e taxes, cost of goods sold). Additionally – certain items like depreciation or amortization are typically excluded from this calculation as well.
Ultimately – by understanding how these calculations are made – companies can better determine what level of payouts they can afford without needing to raise additional funds.