What does a high payout ratio indicate?

A high Earning Per Share (EPS)
The management is not ploughing back enough profit
The management is ploughing back profit
The company is earning high profit

The correct answer is: B. The management is not ploughing back enough profit.

A payout ratio is the percentage of a company’s net income that is paid out to shareholders in the form of dividends. A high payout ratio indicates that the company is not retaining much of its earnings, and is instead returning them to shareholders. This can be a sign that the company is not confident in its ability to generate future growth, or that it believes that its shareholders can get a better return on their investment elsewhere.

A low payout ratio, on the other hand, indicates that the company is retaining more of its earnings. This can be a sign that the company is confident in its ability to generate future growth, or that it believes that it can invest its earnings more profitably than its shareholders can.

Earnings per share (EPS) is a measure of a company’s profitability. It is calculated by dividing a company’s net income by the number of shares outstanding. A high EPS indicates that a company is profitable and is generating a lot of earnings per share. However, EPS does not take into account a company’s debt load or its capital structure. Therefore, it is not always a reliable indicator of a company’s financial health.

Ploughing back profit is when a company reinvests its earnings back into the business. This can be done by investing in new projects, expanding into new markets, or buying back shares. Ploughing back profit can help a company grow and increase its profits in the future.

Earning high profit is a good thing for a company. It means that the company is generating a lot of money from its operations. However, high profit does not necessarily mean that a company is a good investment. A company with high profit could also be highly leveraged, which means that it has a lot of debt. This could make the company risky to invest in.