Adjusting the Formula

• 1). Adjust the EPS formula so that dividends are a part of the equation. The formula for the payout ratio equals dividends per share divided by EPS. So dividing dividends per share by the payout ratio equals EPS.
  
  
• 2). Determine the dividends per share. To calculate, divide annual dividends by the number of common shares outstanding. Locate annual dividends on the statement of retained earnings. Locate the number of common shares outstanding on the balance sheet for the company.
  
  
• 3). Determine EPS by dividing net income by the number of common shares outstanding. Locate both of these values on the balance sheet.
  
  
• 4). Payout ratio equals dividends per share divided by EPS. Plug in both of these values and calculate.
  
  
• 5). Remove the dividends per share value from the equation. Adjust up or down as necessary and recalculate the EPS formula. The value for EPS increases and decreases relative to the increase or decrease in dividends.