Yield On Earning Assets

  

First things first: solvency. Solvency is a business’ ability to stay afloat. That means someone can keep their business running and meet long-term financial obligations like a big boy.

Yield on earning assets (YEA) is a type of solvency ratio used by banking regulators to judge banks. It compares the financial institution’s interest income to its earning assets. More specifically, it looks at total interest and dividend and fee income from loans and investments as a percentage of average earning assets.

In short, YEA helps regulators see how much cash a bank is raking in from their assets. Banks with a small asset base and sizable cash (yield) are seen as impressive and efficient. The cool kids.

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Finance: What is Dividend Coverage/the D...7 Views

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finance a la shmoop what is dividend coverage and what is the dividend payout

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ratio? whatever.com has earnings big earnings a hundred million dollars worth

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of earnings this year from sales of a whole lot of whatever's the board green [People working in a factory]

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lights a dividend payment of 40 million bucks that is the company will pay 10

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million dollars to its common shareholders of record four times in

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this next year the payout is 40 million because well

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you know it's paid out and yeah clever titling know is never a thing on Wall

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Street and the payout ratio is 40 over a hundred that hundred million of earnings [Payout ratio calculation appears]

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or forty percent well why does the payout ratio even matter?

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well companies hate having to cut their dividends and they love raising them if

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the former well stock prices usually crash if the latter well they usually go

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up and companies love it when their stock prices go up duh so what would [Whatever.com share price rises]

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happen if whatever dot-com stumbled in its earnings tumbled and then

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shareholders mumbled that the earnings payout ratio had crumbled that is... okay

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stop with the rhyming bad timing okay now we're stopping and yeah that is what

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if the earnings of whatever.com went down next year to only 50 million

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remember they were a hundred million now they're only 50....hmm

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problem because now the payout ratio is 80 percent 40 over 50 yeah very

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difficult situation the company thought it would have tons of earnings to cover

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its dividend at the forty million dollar level more or less forever

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but clearly it did not so now what well if earnings recover and go back to a [Man discussing whatever.com's earnings]

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hundred million dollars on their way to the 300 million they projected well,

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then life is grand no sweat no heavy decisions to be made

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but what if earnings fall further to be only thirty million the following year

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well then whatever dot-com has to either borrow money or deplete its cash

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reserves just to cover its dividend in which case the payout ratio would then

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be over a hundred percent meaning that the earnings were 30 million and the [Earnings appear]

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dividend was to be forty well then the payout ratio would be 40 over 30

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133% ouch can't do that for very long without going bankrupt so payout ratios [Wheel spins and lands on bankrupt]

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matter because they give a sense for the safety or certainty that that dividend

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will continue at its present rate if the ratio is low well odds are good the

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company could certainly afford to raise the dividend over time or at least not

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cut it yeah for a very long time ideally and if the ratio is high well your [Dividend cut with scissors]

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bottom line may soon be bottoming out back-end load there if i ever saw it...

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