Sustainable growth rate calculation?

This topic has 5 replies, 2 voices, and was last updated Apr-17 by Sophie Macon.

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- lulu123
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  13 Apr 2017 at 8:34 pm
  
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  ROA = 4.8%
  Total asset turnover = 1.92
  Financial leverage = 1.75
  Dividend payout ratio = 48.1%
  
  The company’s sustainable growth rate is closest to:
  A. 4%
  B. 4.40%
  C. 4.78%
  
  The answer is B but I can’t figure out how to get there.
  
  Could anybody tell me the calculation please?
  
  (PS: how do I put a screenshot into the post? I can only put an image using a web link…)
- Sophie Macon
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  13 Apr 2017 at 8:52 pm
  
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  @lulu123 – upload your image to imgur.com and copy that link in
- Sophie Macon
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  13 Apr 2017 at 8:56 pm
  
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  @lulu123 – a hint first, you have to use the formula here for sustainable growth rate = Retention ratio x ROE
- Sophie Macon
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  13 Apr 2017 at 9:00 pm
  
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  g = RR x ROE
  = (1- Div payout ratio) x (ROA x Financial Leverage)
  = 51.9% x (NI/Avg Assets x Avg Assets/Avg Equity)
  = 51.9% x (4.8% x 1.75)
  = 4.36%
- lulu123
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  13 Apr 2017 at 9:04 pm
  
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  @sophie
  
  hadn’t thought of making ROE = ROA*Leverage!
  
  thank you
- Sophie Macon
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  13 Apr 2017 at 9:12 pm
  
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  Yea they threw in asset turnover for fun @lulu123. 😉 You’re welcome!
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