The payout ratio is always calculated on the basis of the gross dividend. It compares the dividend per share to the earnings per share. The payout ratio shows the proportion of its total earnings that a company pays out to its shareholders expressed as a percentage.
A company's payout ratio reflects its dividend policy. If 40% is paid out to shareholders, 60% is retained by the company. Fast-growing companies tend to have lower payout ratios because they use their retained earnings to finance growth. More mature companies with long-established product ranges tend to have higher payout ratios.