What is the formula for the dividends payout ratio?

The dividends payout ratio is a financial metric that measures the proportion of earnings a company pays to its shareholders in the form of dividends. It provides insight into the company's dividend policy and how much of its earnings are being distributed to shareholders versus being retained for reinvestment in the business.

The correct answer, which states that the dividends payout ratio is calculated as dividends paid to common shareholders divided by net income, accurately reflects this concept. By using net income, the ratio directly assesses how much of the company's profits are returned to shareholders as dividends. A higher payout ratio can indicate a company’s commitment to returning cash to its investors, while a lower ratio suggests that the company may be retaining more earnings for growth or other purposes.

In context, the other options do not accurately reflect the definition of the dividends payout ratio. Total assets, total liabilities, and shareholder equity are not appropriate denominators for this specific calculation, as they fail to capture the relationship between the company's profits and the dividends distributed. By focusing on net income as the denominator, it underscores the relationship between profitability and shareholder returns.