Definition of Feasible target payout ratios

Feasible target payout ratios

payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Asset activity ratios

ratios that measure how effectively the firm is managing its assets.

Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

Common stock ratios

ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.

Coverage ratios

ratios used to test the adequacy of cash flows generated through earnings for purposes of
meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.

Dividend payout ratio

Percentage of earnings paid out as dividends.

Feasible portfolio

A portfolio that an investor can construct given the assets available.

Feasible set of portfolios

The collection of all feasible portfolios.

Financial leverage ratios

Related: capitalization ratios.

Full-payout lease

See: financial lease.

Leverage ratios

Measures of the relative contribution of stockholders and creditors, and of the firm's ability
to pay financing charges. Value of firm's debt to the total value of the firm.

Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.

Liquidity ratios

ratios that measure a firm's ability to meet its short-term financial obligations on time.

Market value ratios

ratios that relate the market price of the firm's common stock to selected financial
statement items.

Payout ratio

Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

Profitability ratios

ratios that focus on the profitability of the firm. Profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the
investment.

Rate of return ratios

ratios that are designed to measure the profitability of the firm in relation to various
measures of the funds invested in the firm.

Reserve ratios

Specified percentages of deposits, established by the Federal Reserve Board, that banks must
keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

Short-term solvency ratios

ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

Target cash balance

Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.

Target firm

A firm that is the object of a takeover by another firm.

Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line
increases in earnings occur.

Target zone arrangement

A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

Targeted repurchase

The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.

Target costing

A method of costing that is concerned with managing whole-of-life costs of a product/service during the product design phase – the difference between target price (to achieve market share) and the target profit margin.

Target rate of return pricing

A method of pricing that estimates the desired return on investment to be achieved from the
fixed and working capital investment and includes that return in the price of a product/service.

dividend payout ratio

Computed by dividing cash dividends for the year
by the net income for the year. It’s simply the percent of net income distributed
as cash dividends for the year.

profit ratios

ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.

feasible region

the graphical space contained within and on
all of the constraint lines in the graphical solution to a linear
programming problem

feasible solution

a solution to a linear programming problem
that does not violate any problem constraints

target costing

a method of determining what the cost of a
product should be based on the product’s estimated selling
price less the desired profit

dividend payout ratio

Percentage of earnings paid out as dividends.

payout ratio

Fraction of earnings paid out as dividends.

Target

A specific level of some economic variable that a policy attempts to maintain.

Target Benefit Plan

A defined benefit plan under which the employer makes
annual contributions into the plan based on the actuarial assumption at that time
regarding the amount of funding needed to achieve a targeted benefit level.

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